(a) | Period | Total Number of Shares Purchased (a) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Program (b) | | Maximum Number of Shares that may yet be Purchased Under the Program (b) | March 1, 2021 - April 4, 2021 | 2,126,480 | | $ | 58.78 | | 2,126,480 | | 37,290,922 | April 5, 2021 - May 2, 2021 | 2,339,540 | | | 61.14 | | 2,339,540 | | 34,951,382 | May 3, 2021 - May 30, 2021 | 518,285 | | | 63.21 | | 518,285 | | 34,433,097 | Total | 4,984,305 | | $ | 60.35 | | 4,984,305 | | 34,433,097 |
(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.
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.
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
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:
Fiscal 2021 | In millions, except per share | | Fiscal 2021 vs. Fiscal 2020 | | Percent of Net Sales | | Constant-Currency Growth (a) | Net sales | $ | 18,127.0 | | 3 | % | | | | | | | Operating profit | | 3,144.8 | | 6 | % | | 17.3 | % | | | | Net earnings attributable to General Mills | | 2,339.8 | | 7 | % | | | | | | | Diluted earnings per share | $ | 3.78 | | 6 | % | | | | | | | Organic net sales growth rate (a) | | | | 4 | % | | | | | | | Adjusted operating profit (a) | | 3,153.2 | | 3 | % | | 17.4 | % | | 2 | % | Adjusted diluted earnings per share (a) | $ | 3.79 | | 5 | % | | | | | 4 | % | (a) See the "Non-GAAP Measures" section below for our use of measures not defined by GAAP. | |
Consolidated net sales were as follows:
| Fiscal 2021 | | Fiscal 2021 vs. Fiscal 2020 | | Fiscal 2020 | Net sales (in millions) | $ | 18,127.0 | | 3 | % | | $ | 17,626.6 | Contributions from volume growth (a) | | | | Flat | | | | | Net price realization and mix | | | | 2 | pts | | | | Foreign currency exchange | | | | 1 | pt | | | | Note: Table may not foot due to rounding | (a) Measured in tons based on the stated weight of our product shipments. |
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:
Fiscal 2021 vs. Fiscal 2020 |
|
| Contributions from organic volume growth (a) | 2 | pts | Organic net price realization and mix | 2 | pts | Organic net sales growth | 4 | pts | Foreign currency exchange | 1 | pt | 53rd week | (2) | pts | Net sales growth | 3 | pts | Note: Table may not foot due to rounding | (a) Measured in tons based on the stated weight of our product shipments. |
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.
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:
Fiscal 2021 vs. Fiscal 2020 | CPW | | HDJ | | Total | | Contributions from volume growth (a) | 4 | pts | 2 | pts | | | Net price realization and mix | 1 | pt | 4 | pts | | | Net sales growth in constant currency | 5 | pts | 6 | pts | 5 | pts | Foreign currency exchange | 1 | pt | 2 | pts | 1 | pt | Net sales growth | 6 | pts | 8 | pts | 6 | pts | Note: Table may not foot due to rounding | | | | | | | (a) Measured in tons based on the stated weight of our product shipments |
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.
The following tables provide the dollar amount and percentage of net sales and operating profit from each segment for fiscal 2021 and fiscal 2020:
| | Fiscal Year | | 2021 | | 2020 | In Millions | Dollars | Percent of Total | | Dollars | Percent of Total | Net Sales | | | | | | | | | | North America Retail | $ | 10,995.4 | 60 | % | | $ | 10,750.5 | 61 | % | Europe & Australia | | 1,981.5 | 11 | | | | 1,838.9 | 10 | | Convenience Stores & Foodservice | | 1,742.4 | 10 | | | | 1,816.4 | 10 | | Pet | | 1,732.4 | 10 | | | | 1,694.6 | 10 | | Asia & Latin America | | 1,675.3 | 9 | | | | 1,526.2 | 9 | | Total | $ | 18,127.0 | 100 | % | | $ | 17,626.6 | 100 | % | | | | | | | | | | | Segment Operating Profit | | | | | | | | | | North America Retail | $ | 2,623.2 | 73 | % | | $ | 2,627.0 | 75 | % | Europe & Australia | | 151.0 | 4 | | | | 113.8 | 3 | | Convenience Stores & Foodservice | | 306.0 | 9 | | | | 337.2 | 10 | | Pet | | 415.0 | 12 | | | | 390.7 | 11 | | Asia & Latin America | | 85.6 | 2 | | | | 18.7 | 1 | | Total | $ | 3,580.8 | 100 | % | | $ | 3,487.4 | 100 | % |
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:
| Fiscal 2021 | | Fiscal 2021 vs. 2020 Percentage Change | | Fiscal 2020 | Net sales (in millions) | $ | 10,995.4 | | 2 | % | | $ | 10,750.5 | Contributions from volume growth (a) | | | | 1 | pt | | | | Net price realization and mix | | | | 1 | pt | | | | Foreign currency exchange | | | | Flat | | | | |
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.
The components of North America Retail organic net sales growth are shown in the following table:
(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
| Fiscal 2021 vs. 2020 Percentage Change | Contributions from organic volume growth (a) |
| 3 | pts | Organic net price realization and other derivative instruments, Rule10b5-1 trading plans, and accelerated repurchase programs. The Board did not specify an expiration date for the authorization.mix |
| 1 | pt | Organic net sales growth |
| 4 | pts | Foreign currency exchange |
| Flat |
| 53rd week |
| (2) | pts | Net sales growth |
| 2 | pts |
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:
In Millions | Fiscal 2021 | | Fiscal 2021 vs. 2020 Percentage Change | | Fiscal 2020 | U.S. Meals & Baking | $ | 4,611.6 | | 5 | % | | $ | 4,408.5 | U.S. Cereal | | 2,455.2 | | 1 | % | | | 2,434.1 | U.S. Snacks | | 2,048.3 | | (2) | % | | | 2,091.9 | Canada (a) | | 953.2 | | 6 | % | | | 897.0 | U.S. Yogurt and other | | 927.1 | | 1 | % | | | 919.0 | Total | $ | 10,995.4 | | 2 | % | | $ | 10,750.5 |
(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:
| Fiscal 2021 | | Fiscal 2021 vs. 2020 Percentage Change | | Fiscal 2020 | Net sales (in millions) | $ | 1,981.5 | | 8 | % | | $ | 1,838.9 | Contributions from volume growth (a) | | | | (3) | pts | | | | Net price realization and mix | | | | 3 | pts | | | | Foreign currency exchange | | | | 7 | pts | | | |
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.
The components of Europe & Australia organic net sales growth are shown in the following table:
|
| Fiscal 2021 vs. 2020 Percentage Change | Contributions from organic volume growth (a) |
| Flat |
| Organic net price realization and mix |
| 4 | pts | Organic net sales growth |
| 3 | pts | Foreign currency exchange |
| 7 | pts | Divestiture |
| (1) | pt | 53rd week |
| (2) | pts | Net sales growth |
| 8 | pts |
Note: Table may not foot due to rounding (a)Measured in tons based on the stated weight of our product shipments.
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:
| Fiscal 2021 | | Fiscal 2021 vs. 2020 Percentage Change | | Fiscal 2020 | Net sales (in millions) | $ | 1,742.4 | | (4) | % | | $ | 1,816.4 | Contributions from volume growth (a) | | | | (4) | pts | | | | Net price realization and mix | | | | Flat | | | | |
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:
|
| Fiscal 2021 vs. 2020 Percentage Change | Contributions from organic volume growth (a) |
| (2) | pts | Organic net price realization and mix |
| (1) | pt | Organic net sales growth |
| (3) | pts | 53rd week |
| (1) | pt | Net sales growth |
| (4) | pts |
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:
| | Fiscal 2021 | | Fiscal 2021 vs. 2020 Percentage Change | | | Fiscal 2020 | Net sales (in millions) | $ | 1,732.4 | | 2 | % | | $ | 1,694.6 | Contributions from volume growth (a) | | | | 2 | pts | | | | Net price realization and mix | | | | Flat | | | | | Foreign currency exchange | | | | Flat | | | | |
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:
|
| Fiscal 2021 vs. 2020 Percentage Change | Contributions from organic volume growth (a) |
| 2 | pts | Organic net price realization and mix |
| Flat |
| Organic net sales growth |
| 2 | pts | Foreign currency exchange |
| Flat |
| Net sales growth |
| 2 | pts |
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.
Asia & Latin America net sales were as follows:
| Fiscal 2021 | | Fiscal 2021 vs. 2020 Percentage Change | | Fiscal 2020 | Net sales (in millions) | $ | 1,675.3 | | 10 | % | | $ | 1,526.2 | Contributions from volume growth (a) | | | | 10 | pts | | | | Net price realization and mix | | | | 4 | pts | | | | Foreign currency exchange | | | | (4) | pts | | | |
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:
|
| Fiscal 2021 vs. 2020 Percentage Change | Contributions from organic volume growth (a) |
| 12 | pts | Organic net price realization and mix |
| 3 | pts | Organic net sales growth |
| 15 | pts | Foreign currency exchange |
| (4) | pts | 53rd week |
| (2) | pts | Net sales growth |
| 10 | pts |
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.
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
| Fiscal Year | In Millions | 2021 | | 2020 | Net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 2,346.0 | | $ | 2,210.8 | Depreciation and amortization | | 601.3 | | | 594.7 | After-tax earnings from joint ventures | | (117.7) | | | (91.1) | Distributions of earnings from joint ventures | | 95.2 | | | 76.5 | Stock-based compensation | | 89.9 | | | 94.9 | Deferred income taxes | | 118.8 | | | (29.6) | Pension and other postretirement benefit plan contributions | | (33.4) | | | (31.1) | Pension and other postretirement benefit plan costs | | (33.6) | | | (32.3) | Divestiture loss | | 53.5 | | | - | Restructuring, impairment, and other exit costs | | 150.9 | | | 43.6 | Changes in current assets and liabilities, excluding the effects of divestiture | | (155.9) | | | 793.9 | Other, net | | (131.8) | | | 45.9 | Net cash provided by operating activities | $ | 2,983.2 | | $ | 3,676.2 |
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.
Cash Flows from Investing Activities
| Fiscal Year | In Millions | 2021 | | 2020 | Purchases of land, buildings, and equipment | $ | (530.8) | | $ | (460.8) | Investments in affiliates, net | | 15.5 | | | (48.0) | Proceeds from disposal of land, buildings, and equipment | | 2.7 | | | 1.7 | Proceeds from divestiture | | 2.9 | | | - | Other, net | | (3.1) | | | 20.9 | Net cash used by investing activities | $ | (512.8) | | $ | (486.2) |
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
| Fiscal Year | In Millions | 2021 | | 2020 | Change in notes payable | $ | 71.7 | | $ | (1,158.6) | Issuance of long-term debt | | 1,576.5 | | | 1,638.1 | Payment of long-term debt | | (2,609.0) | | | (1,396.7) | Debt exchange participation incentive cash payment | | (201.4) | | | - | Proceeds from common stock issued on exercised options | | 74.3 | | | 263.4 | Purchases of common stock for treasury | | (301.4) | | | (3.4) | Dividends paid | | (1,246.4) | | | (1,195.8) | Distributions to redeemable and noncontrolling interest holders | | (48.9) | | | (72.5) | Other, net | | (30.9) | | | (16.0) | Net cash used by financing activities | $ | (2,715.5) | | $ | (1,941.5) |
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 Financial DataCash Flows from Joint Ventures
Selected cash flows from our joint ventures are set forth in the following table:
| Fiscal Year | Inflow (Outflow), in Millions | 2021 | | 2020 | Investments in affiliates, net | $ | 15.5 | | $ | (48.0) | Dividends received | | 95.2 | | | 76.5 |
The following table sets forth selecteddetails the fee-paid committed and uncommitted credit lines we had available as of May 30, 2021:
In Billions | Facility Amount | | Borrowed Amount | Credit facility expiring: | | | | | | April 2026 | $ | 2.7 | | $ | - | September 2022 | | 0.2 | | | - | Total committed credit facilities | | 2.9 | | | - | Uncommitted credit facilities | | 0.6 | | | 0.4 | Total committed and uncommitted credit facilities | $ | 3.5 | | $ | 0.4 |
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.
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.
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:
| Fiscal Year | | 2021 | | 2020 | | 2019 | Estimated fair values of stock options granted | $ | 8.03 | | | $ | 7.10 | | | $ | 5.35 | | Assumptions: | | | | | | | | | | | | Risk-free interest rate | | 0.7 | % | | | 2.0 | % | | | 2.9 | % | Expected term | | 8.5 | years | | | 8.5 | years | | | 8.5 | years | Expected volatility | | 19.5 | % | | | 17.4 | % | | | 16.3 | % | Dividend yield | | 3.3 | % | | | 3.6 | % | | | 4.3 | % |
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
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:
| Defined Benefit Pension Plans | | Other Postretirement Benefit Plans | | Postemployment Benefit Plans | Effective rate for fiscal 2022 service costs | 3.53 | % | | 3.34 | % | | 2.46 | % | Effective rate for fiscal 2022 interest costs | 2.42 | % | | 2.08 | % | | 1.48 | % | Obligations as of May 31, 2021 | 3.17 | % | | 3.03 | % | | 2.04 | % | Effective rate for fiscal 2021 service costs | 3.59 | % | | 3.44 | % | | 2.54 | % | Effective rate for fiscal 2021 interest costs | 2.54 | % | | 2.32 | % | | 1.41 | % | Obligations as of May 31, 2020 | 3.20 | % | | 3.02 | % | | 1.85 | % | Effective rate for fiscal 2020 service costs | 4.19 | % | | 4.04 | % | | 3.51 | % | Effective rate for fiscal 2020 interest costs | 3.47 | % | | 3.28 | % | | 2.84 | % |
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 years2022 by approximately $54 million. All obligation-related experience gains and losses are amortized using a straight-line method over the average remaining service period of active plan participants or over the average remaining lifetime of the remaining plan participants if the plan is viewed as “all or almost all” inactive participants.
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
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 five-yearcalculation of expected future claims. Once recognized, experience gains and losses are amortized using a straight-line method over the average remaining service period endedof active plan participants or over the average remaining lifetime of the remaining plan participants if the plan is viewed as “all or almost all” inactive participants.
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 26, 2019:30, 2021, we had cumulative unrecognized actuarial net losses of $2 billion on our defined benefit pension plans and cumulative unrecognized actuarial net gains of $179 million on our postretirement and postemployment benefit plans, mainly as the result of liability increases from lower interest rates, partially offset by recent increases in the values of plan assets. These unrecognized actuarial net losses will result in increases in our future pension and postretirement benefit expenses because they currently exceed the corridors defined by GAAP.
| | | | | | | | | | | | | | | | | | | | | In Millions, Except Per Share Data, Percentages and Ratios | | Fiscal Year | | | 2019 (a) | | | 2018 | | | 2017 | | | 2016 | | | 2015 (b) | | Operating data: | | | | | | | | | | | | | | | | | | | | | Net sales | | $ | 16,865.2 | | | $ | 15,740.4 | | | $ | 15,619.8 | | | $ | 16,563.1 | | | $ | 17,630.3 | | Gross margin (c) (d) | | | 5,756.8 | | | | 5,435.6 | | | | 5,567.8 | | | | 5,843.3 | | | | 5,967.8 | | Selling, general, and administrative expenses (d) | | | 2,935.8 | | | | 2,850.1 | | | | 2,888.8 | | | | 3,141.4 | | | | 3,389.9 | | Operating profit (d) | | | 2,515.9 | | | | 2,419.9 | | �� | | 2,492.1 | | | | 2,719.1 | | | | 2,071.8 | | Net earnings attributable to General Mills | | | 1,752.7 | | | | 2,131.0 | | | | 1,657.5 | | | | 1,697.4 | | | | 1,221.3 | | Advertising and media expense | | | 601.6 | | | | 575.9 | | | | 623.8 | | | | 754.4 | | | | 823.1 | | Research and development expense | | | 221.9 | | | | 219.1 | | | | 218.2 | | | | 222.1 | | | | 229.4 | | Average shares outstanding: | | | | | | | | | | | | | | | | | | | | | Diluted | | | 605.4 | | | | 585.7 | | | | 598.0 | | | | 611.9 | | | | 618.8 | | Earnings per share: | | | | | | | | | | | | | | | | | | | | | Diluted | | $ | 2.90 | | | $ | 3.64 | | | $ | 2.77 | | | $ | 2.77 | | | $ | 1.97 | | Adjusted diluted (c) (e) | | $ | 3.22 | | | $ | 3.11 | | | $ | 3.08 | | | $ | 2.92 | | | $ | 2.86 | | Operating ratios: | | | | | | | | | | | | | | | | | | | | | Gross margin as a percentage of net sales (d) | | | 34.1% | | | | 34.5% | | | | 35.6% | | | | 35.3% | | | | 33.8% | | Selling, general, and administrative expenses as a percentage of net sales (d) | | | 17.4% | | | | 18.1% | | | | 18.5% | | | | 19.0% | | | | 19.2% | | Operating profit as a percentage of net sales (d) | | | 14.9% | | | | 15.4% | | | | 16.0% | | | | 16.4% | | | | 11.8% | | Adjusted operating profit as a percentage of net sales (c) (d) (e) | | | 16.9% | | | | 16.6% | | | | 17.6% | | | | 16.8% | | | | 15.7% | | Effective income tax rate | | | 17.7% | | | | 2.7% | | | | 28.8% | | | | 31.4% | | | | 33.3% | | Balance sheet data: | | | | | | | | | | | | | | | | | | | | | Land, buildings, and equipment | | $ | 3,787.2 | | | $ | 4,047.2 | | | $ | 3,687.7 | | | $ | 3,743.6 | | | $ | 3,783.3 | | Total assets | | | 30,111.2 | | | | 30,624.0 | | | | 21,812.6 | | | | 21,712.3 | | | | 21,832.0 | | Long-term debt, excluding current portion | | | 11,624.8 | | | | 12,668.7 | | | | 7,642.9 | | | | 7,057.7 | | | | 7,575.3 | | Total debt (c) | | | 14,490.0 | | | | 15,818.6 | | | | 9,481.7 | | | | 8,430.9 | | | | 9,191.5 | | Cash flow data: | | | | | | | | | | | | | | | | | | | | | Net cash provided by operating activities (f) | | $ | 2,807.0 | | | $ | 2,841.0 | | | $ | 2,415.2 | | | $ | 2,764.2 | | | $ | 2,648.5 | | Capital expenditures | | | 537.6 | | | | 622.7 | | | | 684.4 | | | | 729.3 | | | | 712.4 | | | | | | | | | | | | | | | | | | | | | | | Free cash flow (c) | | | 2,269.4 | | | | 2,218.3 | | | | 1,730.8 | | | | 2,034.9 | | | | 1,936.1 | | Share data: | | | | | | | | | | | | | | | | | | | | | Cash dividends per common share | | $ | 1.96 | | | $ | 1.96 | | | $ | 1.92 | | | $ | 1.78 | | | $ | 1.67 | |
(a) | In fiscal 2018, we acquired Blue Buffalo.
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.
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:
| | Fiscal Year | | | 2021 | | 2020 | Change | Operating profit as reported | $ | 3,144.8 | $ | 2,953.9 | 6 | % | Restructuring charges (a) | | 172.7 | | 50.2 | | | Project-related costs (a) | | - | | 1.5 | | | Mark-to-market effects (b) | | (138.8) | | 24.7 | | | Investment activity, net (c) | | (76.4) | | 8.4 | | | Divestiture loss (d) | | 53.5 | | - | | | Transaction costs (e) | | 9.5 | | - | | | Non-income tax gain (f) | | (8.8) | | - | | | Product recall adjustment, net (g) | | (3.5) | | 19.3 | | | Adjusted operating profit | $ | 3,153.2 | $ | 3,058.0 | 3 | % | Foreign currency exchange impact | | | | | 1 | pt | Adjusted operating profit growth, on a constant-currency basis | | | | | 2 | % |
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.
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:
| Fiscal Year | Per Share Data | | 2021 | | 2020 | 2021 vs. 2020 Change | | Diluted earnings per share, as reported | $ | 3.78 | $ | 3.56 | 6 | % | Restructuring charges (a) | | 0.22 | | 0.06 | | | Mark-to-market effects (b) | | (0.17) | | 0.03 | | | Investment activity, net (c) | | (0.10) | | - | | | Divestiture loss (d) | | 0.04 | | - | | | Tax items (e) | | 0.02 | | (0.09) | | | Transaction costs (f) | | 0.01 | | - | | | Non-income tax gain (g) | | (0.01) | | - | | | Product recall (h) | | - | | 0.03 | | | CPW restructuring charges (i) | | - | | 0.01 | | | Adjusted diluted earnings per share | $ | 3.79 | $ | 3.61 | 5 | % | Foreign currency exchange impact | | | | | 1 | pt | Adjusted diluted earnings per share growth, on a constant-currency basis | | | | | 4 | % |
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.
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:
In Millions | | Fiscal 2021 | Net earnings, including earnings attributable to redeemable and noncontrolling interests, as reported | $ | 2,346.0 | Restructuring charges, net of tax (a) | | 137.2 | Mark-to-market effects, net of tax (b) | | (106.9) | Investment activity, net, net of tax (c) | | (60.8) | Divestiture loss, net of tax (d) | | 53.1 | Tax item (e) | | 11.2 | Transaction costs, net of tax (f) | | 7.2 | Non-income tax gain, net of tax (g) | | (5.8) | Product recall adjustment, net, net of tax (h) | | (3.1) | CPW restructuring charges, net of tax (i) | | 1.9 | Adjusted net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 2,380.1 | | | | Net cash provided by operating activities | | 2,983.2 | Purchases of land, buildings, and equipment | | (530.8) | Free cash flow | $ | 2,452.4 | | | | Net cash provided by operating activities conversion rate | | 127% | Free cash flow conversion rate | | 103% |
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.
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:
| Fiscal Year | In Millions | | 2021 | | 2020 | Total debt (a) | $ | 12,612.0 | $ | 13,539.5 | Cash | | 1,505.2 | | 1,677.8 | Net debt | $ | 11,106.8 | $ | 11,861.7 | | | | | | Net earnings, including earnings attributable to redeemable and noncontrolling interests, as reported | $ | 2,346.0 | $ | 2,210.8 | Income taxes | | 629.1 | | 480.5 | Interest, net | | 420.3 | | 466.5 | Depreciation and amortization | | 601.3 | | 594.7 | EBITDA | | 3,996.8 | | 3,752.5 | After-tax earnings from joint ventures | | (117.7) | | (91.1) | Restructuring charges (b) | | 172.7 | | 50.2 | Project-related costs (b) | | - | | 1.5 | Mark-to-market effects (c) | | (138.8) | | 24.7 | Investment activity, net (d) | | (76.4) | | 8.4 | Divestiture loss (e) | | 53.5 | | - | Transaction costs (f) | | 9.5 | | - | Non-income tax gain (g) | | (8.8) | | - | Product recall adjustment, net (h) | | (3.5) | | 19.3 | Adjusted EBITDA | $ | 3,887.4 | $ | 3,765.6 | | | | | | Net debt-to-adjusted EBITDA ratio | | 2.9 | | 3.2 |
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.
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:
| Fiscal Year | Percent of Net Sales | 2021 | 2020 | Operating profit as reported | $ | 3,144.8 | 17.3 | % | $ | 2,953.9 | 16.8 | % | Restructuring charges (a) | | 172.7 | 1.0 | % | | 50.2 | 0.3 | % | Project-related costs (a) | | - | - | % | | 1.5 | - | % | Mark-to-market effects (b) | | (138.8) | (0.8) | % | | 24.7 | 0.1 | % | Investment activity, net (c) | | (76.4) | (0.4) | % | | 8.4 | - | % | Divestiture loss (d) | | 53.5 | 0.3 | % | | - | - | % | Transaction costs (e) | | 9.5 | 0.1 | % | | - | - | % | Non-income tax gain (f) | | (8.8) | - | % | | - | - | % | Product recall adjustment, net (g) | | (3.5) | - | % | | 19.3 | 0.1 | % | Adjusted operating profit | $ | 3,153.2 | 17.4 | % | $ | 3,058.0 | 17.3 | % |
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.
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:
| Fiscal Year Ended | | 2021 | 2020 | In Millions (Except Per Share Data) | Pretax Earnings (a) | Income Taxes | Pretax Earnings (a) | Income Taxes | As reported | $2,857.4 | $629.1 | $2,600.2 | $480.5 | Restructuring charges (b) | 172.7 | 35.5 | 50.2 | 11.2 | Project-related costs (b) | - | - | 1.5 | 0.3 | Mark-to-market effects (c) | (138.8) | (31.9) | 24.7 | 5.7 | Investment activity, net (d) | (76.4) | (15.6) | 8.4 | 5.4 | Divestiture loss (e) | 53.5 | 0.4 | - | - | Tax items (f) | - | (11.2) | - | 53.1 | Transaction costs (g) | 9.5 | 2.3 | - | - | Non-income tax gain (h) | (8.8) | (3.0) | - | - | Product recall adjustment, net (i) | (3.5) | (0.4) | 19.3 | 2.2 | As adjusted | $2,865.7 | $605.2 | $2,704.3 | $558.5 | Effective tax rate: | | | | | As reported | | 22.0% | | 18.5% | As adjusted | | 21.1% | | 20.7% | Sum of adjustments to income taxes | | ($24.0) | | $78.0 | Average number of common shares - diluted EPS | | 619.1 | | 613.3 | Impact of income tax adjustments on adjusted diluted EPS | | $0.04 | | $(0.13) |
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.
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:
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| Fiscal 2021 | Percentage change in after-tax earnings from joint ventures as reported |
| 29 | % | Impact of foreign currency exchange |
| 3 | pts | Percentage change in after-tax earnings from joint ventures on a constant-currency basis |
| 26 | % | Note: Table may not foot due to rounding. |
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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:
(b)
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| Fiscal 2015 was2021 | Percentage change in net sales as reported |
| 6 | % | Impact of foreign currency exchange |
| 4 | pts | Percentage change in net sales on a 53-week year; all other fiscal years were 52 weeks.constant-currency basis |
| 3 | % | Note: Table may not foot due to rounding. |
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(c) | Please see “Glossary” in Item 8 of this report for definition.
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(d) | In the first quarter of fiscal 2019, we retrospectively adopted new accounting requirements related to the presentation of net periodic defined benefit pension expense, net periodic postretirement benefit expense, and net periodic postemployment benefit expense. Please see Note 2 to the Consolidated Financial Statements in Item 8 of this report.
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(e) | Please see “Non-GAAP Measures” in Item 7 of this report for our discussion of this measure not defined by generally accepted accounting principles.
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(f) | In fiscal 2018, we retrospectively adopted new requirements for the accounting and presentation of stock-based payments. Please see Note 2 to the Consolidated Financial Statements in Item 8 of this report.
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Constant-currency Segment Operating Profit Growth Rates
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:
| Fiscal 2021 | | Percentage Change in Operating Profit as Reported | Impact of Foreign Currency Exchange | Percentage Change in Operating Profit on Constant-Currency Basis | North America Retail | Flat | | Flat | | Flat | | Europe & Australia | 33 | % | 9 | pts | 24 | % | Pet | 6 | % | Flat | | 6 | % | Note: Table may not foot due to rounding. | | | | | | |
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.
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.
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 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 strategy is the key to winning and sustaining leading share positions in markets around the globe.
Our fundamental financial goal is to generate superior returns for our shareholders over the long term. We believe that increases in organic net sales, adjusted operating profit, adjusted earnings per share (EPS), free cash flow, and cash return to shareholders are key drivers of financial performance for our business.
Our long-term growth objectives are to consistently deliver:
low single-digit annual growth in organic net sales;
mid single-digit annual growth in adjusted operating profit;
high single-digit annual growth in adjusted diluted EPS;
free cash flow conversion averaging above 95 percent of adjusted net earnings after tax; and
cash return to shareholders averaging above 90 percent of free cash flow, including an attractive dividend yield.
We continue to pursue our Consumer First strategy and execute against our global growth framework: 1) competing effectively on all brands and across all geographies through strong innovation, effective consumer marketing, and excellentin-store execution; 2) accelerating growth on our four differential growth platforms, which areHäagen-Dazs ice cream, snack bars,Old El Paso Mexican food, and our portfolio of natural and organic food brands; and 3) reshaping our portfolio through growth-enhancing acquisitions and divestitures, including the acquisition of Blue Buffalo. By focusing on this growth framework, we expect to generate financial performance consistent with the long-term growth objectives listed above, which we believe should result in long-term value creation for our shareholders.
In fiscal 2019 we executed well and met or exceeded each of our key full-year financial targets, including organic net sales growth and constant-currency growth in net sales, adjusted operating profit, and adjusted diluted EPS. Relative to fiscal 2018, we improved our net sales performance in U.S. Yogurt and our emerging market businesses, we increased our contributions from innovation, we stabilized our distribution trends in the U.S., and we generated greater benefits from net price realization and mix through our Strategic Revenue Management capability. These results were partially offset by challenging performance for U.S. snack bars, leaving our organic net sales growth at the low end of the range outlined in our initial annual targets.
We successfully transitioned Blue Buffalo into the General Mills portfolio in fiscal 2019, achieving our goals of double-digit pro forma growth in net sales and segment operating profit excluding the impact of purchase accounting. The combination of record-level Holistic Margin Management (HMM) savings, increased benefits from net price realization and mix, and strong cost management drove growth in constant-currency adjusted operating profit and adjusted diluted EPS ahead of our initial targets. Finally, we continued to maintain a disciplined focus on cash, resulting in another year of strong free cash flow conversion.
Our consolidated net sales for fiscal 2019 rose 7 percent to $16.9 billion. On an organic basis, net sales essentially matchedyear-ago levels. Operating profit of $2.5 billion increased 4 percent. Adjusted operating profit of $2.8 billion increased 9 percent and increased 10 percent on a constant-currency basis. Diluted EPS of $2.90 was down 20 percent compared to fiscal 2018 results. Adjusted diluted EPS was up 4 percent to $3.22 per share and 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 $2.8 billion in fiscal 2019 representing a conversion rate of 157 percent of net earnings, including earnings attributable to redeemable and noncontrolling interests. This cash generation supported capital investments totaling $538 million, and our resulting free cash flow was $2.3 billion at a conversion rate of 115 percent of adjusted net earnings, including earnings attributable to redeemable and noncontrolling interests. We also returned cash to shareholders through dividends totaling $1.2 billion and reduced total debt outstanding by $1.3 billion.
A detailed review of our fiscal 2019 performance compared to fiscal 2018 appears below in the section titled “Fiscal 2019 Consolidated Results of Operations.” A detailed review of our fiscal 2018 performance compared to our fiscal 2017 performance is set forth in Part II, Item 7 of our Form10-K for the fiscal year ended May 27, 2018 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Fiscal 2018 Results of Consolidated Operations.”
In fiscal 2020, our plans include continued strong innovation and investments in capabilities and brand building to accelerate our topline growth, efficiency initiatives to maintain our strong margins, and a disciplined focus on cash to further reduce our leverage. We remain confident that executing our Consumer First strategy and our Compete, Accelerate, and Reshape growth framework will drive sustainable, profitable growth and attractive long-term returns for our shareholders.
Our key full-year fiscal 2020 targets are summarized below:
Organic net sales are expected to increase 1 to 2 percent.
• | | Constant-currency adjusted operating profit is expected to increase 2 to 4 percent from the base of $2.8 billion reported in fiscal 2019. Benefit of the 53rd week in fiscal 2020 will be reinvested in capabilities and brand-building initiatives to drive improvement in our organic net sales growth rate in 2020 and beyond.
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Constant-currency adjusted diluted EPS are expected to increase 3 to 5 percent from the base of $3.22 earned in fiscal 2019.
Free cash flow conversion is expected to be at least 95 percent of adjustedafter-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 2019 CONSOLIDATED RESULTS OF OPERATIONS
In fiscal 2018, we acquired Blue Buffalo, which became our Pet operating segment. We are reporting the Pet operating segment results on aone-month lag and, accordingly, our fiscal 2018 results did not include Pet segment operating results.
In fiscal 2019, net sales increased 7 percent compared to last year, primarily reflecting the addition of Blue Buffalo. Organic net sales were flat in the fiscal year ended May 26, 2019. Operating profit margin of 14.9 percent was down 50 basis points fromyear-ago levels primarily driven by impairment charges recorded for certain intangible and manufacturing assets and unfavorablemark-to-market valuation of certain commodity positions. Adjusted operating profit margin increased 30 basis points to 16.9 percent, primarily driven by lower selling, general, and administrative expenses in our North America Retail segment and the addition of Blue Buffalo, partially offset by higher input costs. Diluted earnings per share of $2.90 decreased 20 percent primarily driven by aone-time benefit recorded in fiscal 2018 related to the Tax Cuts and Jobs Act (TCJA). Adjusted diluted earnings per share of $3.22 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 2019 follows:
| | | | | | | | | | | | | | | | | Fiscal 2019 | | In millions, except per share | | | Fiscal 2019 vs. Fiscal 2018 | | | Percent of Net Sales | | | Constant- Currency Growth (a) | | Net sales | | $ | 16,865.2 | | | | 7 % | | | | | | | | 9 % | | Operating profit | | | 2,515.9 | | | | 4 % | | | | 14.9 % | | | | | | Net earnings attributable to General Mills | | | 1,752.7 | | | | (18) % | | | | | | | | | | Diluted EPS | | $ | 2.90 | | | | (20) % | | | | | | | | | | | | | | | Organic net sales growth rate (a) | | | | | | | Flat | | | | | | | | | | Adjusted operating profit (a) | | | 2,858.0 | | | | 9 % | | | | 16.9 % | | | | 10 % | | Adjusted diluted EPS (a) | | $ | 3.22 | | | | 4 % | | | | | | | | 4 % | | | |
(a) | See the“Non-GAAP Measures” section below for our use of measures not defined by GAAP.
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Consolidated net saleswere as follows:
| | | | | | | | | | | | | | | Fiscal 2019 | | | Fiscal 2019 vs. Fiscal 2018 | | | Fiscal 2018 | | Net sales (in millions) | | $ | 16,865.2 | | | | 7 % | | | $ | 15,740.4 | | | | | | | | | | | | | | | Contributions from volume growth (a) | | | | | | | 5 pts | | | | | | Net price realization and mix | | | | | | | 4 pts | | | | | | Foreign currency exchange | | | | | | | (2)pts | | | | | | | |
(a) | Measured in tons based on the stated weight of our product shipments.
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The 7 percent increase in net sales in fiscal 2019 reflects the addition of Blue Buffalo, favorable net price realization and mix across all other segments, and higher contributions from volume growth in the Asia & Latin America segment, partially offset by lower contributions from volume growth in the North America Retail, Europe & Australia, and Convenience Stores & Foodservice segments.
Components of organic net sales growth are shown in the following table:
| | | | | Fiscal 2019 vs. Fiscal 2018 | | | | Contributions from organic volume growth (a)
| | | (2)pts | | Organic net price realization and mix
| | | 2 pts | | | | | | | Organic net sales growth
| | | Flat | | Foreign currency exchange
| | | (2)pts | | Acquisition and divestitures
| | | 9 pts | | | | Net sales growth
| | | 7 pts | | | |
(a) | Measured in tons based on the stated weight of our product shipments.
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Organic net sales in fiscal 2019 were flat compared to fiscal 2018, as favorable organic net price realization and mix was offset by declining contributions from organic volume growth.
Cost of salesincreased $804 million in fiscal 2019 to $11,108 million. The increase was driven by a $503 million increase due to higher volume and a $194 million increase attributable to product rate and mix, including the impact of the Blue Buffalo acquisition. In fiscal 2019, we recorded a $53 million charge related to the fair value adjustment of inventory acquired in the Blue Buffalo acquisition. We recorded a $36 million net increase in cost of sales related tomark-to-market valuation of certain commodity positions and grain inventories compared to a net decrease of $32 million in fiscal 2018 (please see Note 7 to the Consolidated Financial Statements in Item 8 of this report). In fiscal 2019, we recorded $10 million of restructuring charges in cost of
sales compared to $14 million in fiscal 2018. We also recorded $1 million of restructuring initiative project-related costs in cost of sales in fiscal 2019 compared to $11 million in fiscal 2018 (please see Note 4 to the Consolidated Financial Statements in Item 8 of this report for additional information).
Gross marginincreased 6 percent in fiscal 2019 versus fiscal 2018. Gross margin as a percent of net sales of 34.1 percent decreased 40 basis points compared to fiscal 2018.
Selling, general and administrative (SG&A)expenses increased $86 million to $2,936 million in fiscal 2019 compared to fiscal 2018. The increase in SG&A expenses primarily reflects the addition of Blue Buffalo, partially offset by a decrease in media and advertising expense. SG&A expenses as a percent of net sales in fiscal 2019 decreased 70 basis points compared to fiscal 2018.
Divestitures loss totaled $30 million in fiscal 2019. In fiscal 2019, we sold our La Salteña fresh pasta and refrigerated dough business in Argentina, and recorded apre-tax loss of $35 million. We also sold our yogurt business in China and simultaneously entered into a new Yoplait license agreement with the purchaser for their use of theYoplait brand. We recorded apre-tax gain of $5 million.
Restructuring, impairment, and other exit coststotaled $275 million in fiscal 2019 compared to $166 million in fiscal 2018.
In fiscal 2019, as a result of lower sales projections in our long range plans for the businesses supporting ourProgresso,Food Should Taste Good, and Mountain Highbrand intangible assets, we recorded $193 million of impairment charges related to these brand intangible assets (please see Note 6 to the Consolidated Financial Statements in Item 8 of this report for additional information).
In addition, in fiscal 2019, we recorded a $15 million charge related to the impairment of certain manufacturing assets in our North America Retail and Asia & Latin America segments.
Charges associated with our restructuring initiatives recognized in fiscal 2019 consisted of the following:
| | | | | Expense, in Millions | | | | Targeted actions in global supply chain
| | $ | 80.2 | | Charges associated with restructuring actions previously announced
| | | (2.6) | | | | Total (a)
| | $ | 77.6 | | | |
(a) | Includes restructuring charges recorded in cost of sales of $9.9 million.
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In fiscal 2019, we approved restructuring actions to drive efficiencies in targeted areas of our global supply chain. In connection with these actions we recorded $80 million of restructuring charges, consisting of $23 million of severance expense and $57 million of other costs, primarily asset write-offs. Four of our operating segments were affected by these actions including $54 million related to our North America Retail segment, $13 million related to our Asia & Latin America segment, $12 million related to our Europe & Australia segment, and $1 million related to our Pet segment. We expect these actions to be completed by the end of fiscal 2022.
We spent $49 million of cash related to restructuring initiatives in fiscal 2019.
Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report for additional information.
Benefit plan non-service income totaled $88 million in fiscal 2019 compared to $89 million in fiscal 2018 (please see to Note 2 to the Consolidated Financial Statements in Item 8 of this report for additional information).
Interest, netfor fiscal 2019 totaled $522 million, $148 million higher than fiscal 2018, primarily driven by higher debt levels due to financing for the Blue Buffalo acquisition.
Oureffective tax ratefor fiscal 2019 was 17.7 percent compared to 2.7 percent in fiscal 2018. The 15.0 percentage point increase reflects the lower statutory rate in fiscal 2019 being more than offset by the impact of theone-time, provisional net benefit of $524 million recorded in fiscal 2018 related to the TCJA. Our adjusted effective tax rate was 21.8 percent in fiscal 2019 compared to 25.7 percent in fiscal 2018 (see the“Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The 3.9 percentage point decrease in the adjusted effective tax rate was primarily due to the net benefits associated with the TCJA, partially offset by the change in earnings mix by jurisdiction.
The TCJA includes provisions affecting our fiscal 2019 effective tax rate, including but not limited to: a reduction in the U.S. corporate tax rate on domestic operations to 21 percent; a provision that taxes U.S. allocated expenses and certain income from foreign operations (GILTI); a limitation on deductible interest expense; the repeal of the domestic manufacturing deduction; and a limitation on the deductibility of certain executive compensation. In fiscal 2019, we completed our accounting for the tax effects of the TCJA and recorded a benefit of $7 million which included adjustments to the transition tax and the measurement of our net U.S. deferred tax liability.
After-tax earnings from joint venturesdecreased $13 million to $72 million in fiscal 2019 compared to fiscal 2018, primarily driven by our $11 millionafter-tax share of restructuring charges at CPW, and lower net sales and higher input costs for HDJ. On a constant-currency basis,after-tax earnings from joint ventures decreased 14 percent, including the CPW restructuring charge (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:
| | | | | | | | | | | | | Fiscal 2019 vs. Fiscal 2018 | | CPW | | | HDJ | | | Total | | Contributions from volume growth (a)
| | | (1) pt | | | | (3) pts | | | | | | Net price realization and mix
| | | 2 pts | | | | (4) pts | | | | | | | | | | | | Net sales growth in constant currency
| | | 1 pt | | | | (7) pts | | | | (1) pt | | Foreign currency exchange
| | | (6) pts | | | | (1) pt | | | | (5) pts | | | | Net sales growth
| | | (5) pts | | | | (8) pts | | | | (6) pts | | | |
(a) | Measured in tons based on the stated weight of our product shipments.
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Average diluted shares outstandingincreased by 20 million in fiscal 2019 from fiscal 2018 due to the impact of the fiscal 2018 share issuance to partially fund the acquisition of Blue Buffalo and option exercises.
RESULTS OF SEGMENT OPERATIONS
Our businesses are organized into five operating segments: North America Retail; Convenience Stores & Foodservice; Europe & Australia; Asia & Latin America; and Pet. We are reporting the Pet operating segment results on aone-month lag and, accordingly, our fiscal 2018 results did not include Pet segment operating results.
The following tables provide the dollar amount and percentage of net sales and operating profit from each segment for fiscal 2019 and 2018:
| | | | | | | | | | | | | | | | | | | Fiscal Year | | | | 2019 | | | 2018 | | In Millions | | Dollars | | | Percent of Total | | | Dollars | | | Percent of Total | | | | | | | | Net Sales | | | | | | | | | | | | | | | | | North America Retail | | $ | 9,925.2 | | | | 59% | | | $ | 10,115.4 | | | | 64% | | Convenience Stores & Foodservice | | | 1,969.1 | | | | 12 | | | | 1,930.2 | | | | 12 | | Europe & Australia | | | 1,886.7 | | | | 11 | | | | 1,984.6 | | | | 13 | | Asia & Latin America | | | 1,653.3 | | | | 10 | | | | 1,710.2 | | | | 11 | | Pet | | | 1,430.9 | | | | 8 | | | | - | | | | - | | | | Total | | $ | 16,865.2 | | | | 100% | | | $ | 15,740.4 | | | | 100% | | | | | | | | | Segment Operating Profit | | | | | | | | | | | | | | | | | North America Retail | | $ | 2,277.2 | | | | 72% | | | $ | 2,217.4 | | | | 80% | | Convenience Stores & Foodservice | | | 419.5 | | | | 13 | | | | 392.6 | | | | 14 | | Europe & Australia | | | 123.3 | | | | 4 | | | | 142.1 | | | | 5 | | Asia & Latin America | | | 72.4 | | | | 2 | | | | 39.6 | | | | 1 | | Pet | | | 268.4 | | | | 9 | | | | - | | | | - | | | | Total | | $ | 3,160.8 | | | | 100% | | | $ | 2,791.7 | | | | 100% | | | |
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, ande-commerce grocery providers. Our product categories in this businesssegment are ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks, and a wide variety of organic products including refrigerated yogurt, nutrition bars, meal kits,salty snacks, ready-to-eat cereal, and grain snacks.
North America Retail net sales were as follows:
| | | | | | | | | | | | | | | Fiscal 2019 | | | Fiscal 2019 vs. 2018 Percentage Change | | | Fiscal 2018 | | Net sales (in millions) | | $ | 9,925.2 | | | | (2) % | | | $ | 10,115.4 | | Contributions from volume growth (a) | | | | | | | (3)pts | | | | | | Net price realization and mix | | | | | | | 2 pts | | | | | | Foreign currency exchange | | | | | | | (1)pt | | | | | |
(a) | Measured in tons based on the stated weight of our product shipments.
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The 2 percent decrease in North America Retail net sales for fiscal 2019 was driven by a decrease in contributions from volume growth and unfavorable foreign currency exchange, partially offset by an increase in net price realization and mix.
The components of North America Retail organic net sales growth are shown in the following table:
| | | | | | | Fiscal
2019 vs. 2018
Percentage Change | | Contributions from organic volume growth (a)
| | | (2)pts | | Organic net price realization and mix
| | | 1 pt | | Organic net sales growth
| | | (1)pt | | Foreign currency exchange
| | | (1)pt | | Divestiture (b)
| | | Flat | | Net sales growth
| | | (2)pts | |
(a) | Measured in tons based on the stated weight of our product shipments.
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(b) | Related to the divestiture of North American Green Giant product lines.
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North America Retail organic net sales decreased 1 percent in fiscal 2019 compared to fiscal 2018, driven by a decrease in contributions from organic volume growth partially offset by favorable organic net price realization and mix.
Net sales for our North America Retail operating units are shown in the following table:
| | | | | | | | | | | | | In Millions | |
| Fiscal 2019 | | |
| Fiscal 2019 vs. 2018 Percentage Change | | |
| Fiscal
2018 |
| U.S. Meals & Baking | | | $ 3,839.8 | | | | (1)% | | | | $ 3,865.7 | | U.S. Cereal | | | 2,255.4 | | | | Flat | | | | 2,251.8 | | U.S. Snacks | | | 2,060.9 | | | | (4)% | | | | 2,140.5 | | U.S. Yogurt and Other | | | 906.7 | | | | (2)% | | | | 927.4 | | Canada (a) | | | 862.4 | | | | (7)% | | | | 930.0 | | Total | | | $ 9,925.2 | | | | (2)% | | | | $ 10,115.4 | |
(a) | On a constant currency basis, Canada operating unit net sales decreased 4 percent in fiscal 2019. See the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP.
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Segment operating profit increased 3 percent to $2,277 million in fiscal 2019, compared to $2,217 million in fiscal 2018, primarily driven by lower SG&A expenses, partially offset by lower contributions from volume growth. Segment operating profit increased 3 percent on a constant-currency basis in fiscal 2019 compared to fiscal 2018 (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 areready-to-eat cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products, and baking mixes. 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:
| | | | | | | | | | | | | | | Fiscal 2019 | | | Fiscal 2019 vs. 2018 Percentage Change | | | Fiscal 2018 | | Net sales (in millions) | | $ | 1,969.1 | | | | 2 % | | | $ | 1,930.2 | | Contributions from volume growth (a) | | | | | | | (2)pts | | | | | | Net price realization and mix | | | | | | | 4 pts | | | | | |
(a) | Measured in tons based on the stated weight of our product shipments.
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Convenience Stores & Foodservice net sales increased 2 percent in fiscal 2019, driven by favorable net price realization and mix partially offset by a decrease in contributions from volume growth.
The components of Convenience Stores & Foodservice organic net sales growth are shown in the following table:
| | | | | | | Fiscal
2019 vs. 2018
Percentage Change | | Contributions from organic volume growth (a)
| | | (2)pts | | Organic net price realization and mix
| | | 4 pts | | Organic net sales growth
| | | 2 pts | | Net sales growth
| | | 2 pts | |
(a) | Measured in tons based on the stated weight of our product shipments.
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Segment operating profit increased 7 percent to $420 million in fiscal 2019, compared to $393 million in fiscal 2018, primarily driven by favorable net price realization and mix, partially offset by higher input costs.
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, super-premium ice cream, refrigerated and frozen dough products, shelf stable vegetables, grain snacks, and dessert and baking mixes. We also sell super-premium ice cream directly to consumers through owned retail shops. Revenues from franchise fees are reported in the region or country where the franchisee is located.
Europe & Australia net sales were as follows:
| | | | | | | | | | | | | | | Fiscal 2019 | | | Fiscal 2019 vs. 2018 Percentage Change | | | Fiscal 2018 | | Net sales (in millions) | | $ | 1,886.7 | | | | (5) % | | | $ | 1,984.6 | | Contributions from volume growth (a) | | | | | | | (3)pts | | | | | | Net price realization and mix | | | | | | | 2 pts | | | | | | Foreign currency exchange | | | | | | | (4)pts | | | | | |
(a) | Measured in tons based on the stated weight of our product shipments.
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The 5 percent decrease in Europe & Australia net sales in fiscal 2019 was driven by unfavorable foreign currency exchange and lower contributions from volume growth, partially offset by favorable net price realization and mix.
The components of Europe & Australia organic net sales growth are shown in the following table:
| | | | | | | Fiscal
2019 vs. 2018
Percentage Change | | Contributions from organic volume growth (a)
| | | (3)pts | | Organic net price realization and mix
| | | 2 pts | | Organic net sales growth
| | | (1)pt | | Foreign currency exchange
| | | (4)pts | | Net sales growth
| | | (5)pts | | | |
(a) | Measured in tons based on the stated weight of our product shipments.
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The 1 percent decrease in Europe & Australia organic net sales growth in fiscal 2019 was driven by a decrease in contributions from organic volume growth partially offset by favorable organic net price realization and mix.
Segment operating profit decreased 13 percent to $123 million in fiscal 2019, compared to $142 million in the same period of fiscal 2018 primarily driven by lower contributions from volume growth and higher input costs, including currency-driven inflation on imported products in certain markets, partially offset by lower SG&A expenses. Segment operating profit decreased 8 percent on a constant-currency basis in fiscal 2019 compared to fiscal 2018 (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, refrigerated and frozen dough products, dessert and baking mixes, meal kits, salty and grain snacks, wellness beverages, and refrigerated yogurt. 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.
Asia & Latin America net sales were as follows:
| | | | | | | | | | | | | | | Fiscal 2019 | | | Fiscal 2019 vs. 2018 Percentage Change | | | Fiscal 2018 | | Net sales (in millions) | | $ | 1,653.3 | | | | (3)% | | | $ | 1,710.2 | | Contributions from volume growth (a) | | | | | | | 1 pt | | | | | | Net price realization and mix | | | | | | | 3 pts | | | | | | Foreign currency exchange | | | | | | | (7)pts | | | | | |
(a) | Measured in tons based on the stated weight of our product shipments.
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Asia & Latin America net sales decreased 3 percent in fiscal 2019 compared to fiscal 2018, driven by unfavorable foreign currency exchange, partially offset by favorable net price realization and mix and an increase in contributions from volume growth.
The components of Asia & Latin America organic net sales growth are shown in the following table:
| | | | | | | Fiscal
2019 vs. 2018
Percentage Change | | Contributions from organic volume growth (a)
| | | 3 pts | | Organic net price realization and mix
| | | 3 pts | | Organic net sales growth
| | | 6 pts | | Foreign currency exchange
| | | (7)pts | | Divestitures (b)
| | | (2)pts | | Net sales growth
| | | (3)pts | | | |
(a) | Measured in tons based on the stated weight of our product shipments.
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(b) | Impact of the divestiture of our La Salteña business in Argentina and our Yoplait business in China.
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The 6 percent increase in Asia & Latin America organic net sales in fiscal 2019 was driven by favorable organic net price realization and mix and an increase in contributions from organic volume growth.
Segment operating profit increased 83 percent to $72 million in fiscal 2019, compared to $40 million in fiscal 2018, primarily driven by higher contributions from volume growth, higher net price realization and mix and lower SG&A expenses, partially offset by higher input costs, including currency-driven inflation on imported
products in certain markets. Segment operating profit increased 71 percent on a constant-currency basis in fiscal 2019 compared to fiscal 2018 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
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. We are reporting the Pet operating segment resultson a one-month lag and accordingly, our fiscal 2018 results did not include Pet segment operating results.
Pet net sales were as follows:
| | | | | | | | | | | Fiscal | | | | 2019 | | | 2018 | | Net sales (in millions) | | $ | 1,430.9 | | | $ | - | |
Pet net sales and segment operating profit in fiscal 2019 totaled $1,431 million and $268 million, respectively. Pet operating profit includes a $53 million purchase accounting adjustment related to inventory acquired and $13 million of amortization of the customer list intangible asset.
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 themark-to-market valuation of certain commodity positions until passed back to our operating segments in accordance with our policy as discussed in Note 7 to the Consolidated Financial Statements in Item 8 of this report.
In fiscal 2019, unallocated corporate expense increased $134 million to $340 million compared to $206 million last year, primarily driven by compensation and benefits expenses. In fiscal 2019, we recorded a $36 million net increase in expense related tomark-to-market valuation of certain commodity positions and grain inventories compared to a $32 million net decrease in expense in the prior year. In addition, we recorded $10 million of restructuring charges, and $1 million of restructuring initiative project-related costs in cost of sales in fiscal 2019, compared to $14 million of restructuring charges and $11 million of restructuring initiative project-related costs in cost of sales in fiscal 2018. In fiscal 2019, we recorded a $16 million gain from a legal recovery related to our Yoplait SAS subsidiary and $23 million of gains related to certain investment valuation adjustments. We also recorded $26 million of integration costs in fiscal 2019 related to our acquisition of Blue Buffalo compared to $34 million of transaction and integration costs in fiscal 2018. In addition, we recorded a $3 million loss related to the impact of hyperinflationary accounting for our Argentina subsidiary in fiscal 2019.
IMPACT OF INFLATION
We experienced input cost inflation of 4 percent in fiscal 2019 and 4 percent in fiscal 2018, primarily on commodity inputs. We expect input cost inflation of approximately 4 percent in fiscal 2020. We attempt to minimize the effects of inflation through HMM, planning, and operating practices. Our risk management practices are discussed in Item 7A of this report.
LIQUIDITY
The primary source of our liquidity is cash flow from operations. Over the most recenttwo-year period, our operations have generated $5.6 billion in cash. A substantial portion of this operating cash flow has been returned to shareholders through share repurchases and dividends. 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 stock, to finance significant acquisitions.
As of May 26, 2019, we had $399 million of cash and cash equivalents held in foreign jurisdictions. As a result of the TCJA, the historic undistributed earnings of our foreign subsidiaries were taxed in the U.S. via theone-time repatriation tax in fiscal 2018. We havere-evaluated our assertion and have concluded that although earnings prior to fiscal 2018 will remain permanently reinvested, we will no longer make a permanent reinvestment assertion beginning with our fiscal 2018 earnings. As part of the accounting for the TCJA, we recorded local country withholding taxes related to certain entities from which we began repatriating undistributed earnings and will continue to record local country withholding taxes on all future earnings. As a result of the transition tax, 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 (please see Note 14 to the Consolidated Financial Statements in Item 8 of this report for additional information).
Cash Flows from Operations
| | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | | Net earnings, including earnings attributable to redeemable and noncontrolling interests | | $ | 1,786.2 | | | $ | 2,163.0 | | Depreciation and amortization | | | 620.1 | | | | 618.8 | | After-tax earnings from joint ventures | | | (72.0) | | | | (84.7 | ) | Distributions of earnings from joint ventures | | | 86.7 | | | | 113.2 | | Stock-based compensation | | | 84.9 | | | | 77.0 | | Deferred income taxes | | | 93.5 | | | | (504.3 | ) | Pension and other postretirement benefit plan contributions | | | (28.8) | | | | (31.8 | ) | Pension and other postretirement benefit plan costs | | | 6.1 | | | | 4.6 | | Divestitures loss | | | 30.0 | | | | - | | Restructuring, impairment, and other exit costs | | | 235.7 | | | | 126.0 | | Changes in current assets and liabilities, excluding the effects of acquisitions and divestitures | | | (7.5) | | | | 542.1 | | Other, net | | | (27.9) | | | | (182.9 | ) | | | Net cash provided by operating activities | | $ | 2,807.0 | | | $ | 2,841.0 | | | |
During fiscal 2019, cash provided by operations was $2,807 million compared to $2,841 million in the same period last year. The $34 million decrease was primarily driven by a $377 million decrease in net earnings and a $550 million change in current assets and liabilities, partially offset by a $598 million change in deferred income taxes. The $550 million change in current assets and liabilities was primarily driven by a $413 million change in the timing of accounts payable, including the impact of longer payment terms implemented in prior fiscal years. The change in deferred income taxes was primarily related to the $638 million provisional benefit from revaluing our net U.S. deferred tax liabilities to reflect the new U.S. corporate tax rate as a result of the TCJA in fiscal 2018.
We strive to grow core working capital at or below the rate of growth in our net sales. For fiscal 2019, core working capital decreased 34 percent, compared to a net sales increase of 7 percent. As of May 26, 2019, our core working capital balance totaled $385 million, down 34 percent versus last year, this is primarily driven by continued benefits from our payment terms extension program and lower inventory balances. In fiscal 2018, core working capital decreased 27 percent, compared to a net sales increase of 1 percent.
Cash Flows from Investing Activities
| | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | | Purchases of land, buildings, and equipment | | $ | (537.6) | | | $ | (622.7) | | Acquisitions, net of cash acquired | | | - | | | | (8,035.8) | | Investments in affiliates, net | | | 0.1 | | | | (17.3) | | Proceeds from disposal of land, buildings, and equipment | | | 14.3 | | | | 1.4 | | Proceeds from divestitures | | | 26.4 | | | | - | | Other, net | | | (59.7) | | | | (11.0) | | | | Net cash used by investing activities | | $ | (556.5) | | | $ | (8,685.4) | | | |
In fiscal 2019, we used $556 million of cash through investing activities compared to $8.7 billion in fiscal 2018. This decrease was primarily driven by the acquisition of Blue Buffalo for an aggregate purchase price of $8.0 billion, including $103 million of consideration for net debt repaid, in fiscal 2018. We invested $538 million in land, buildings, and equipment in fiscal 2019, $85 million less than fiscal 2018.
We expect capital expenditures to be approximately 3.5 percent of reported net sales in fiscal 2020. 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
| | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | | Change in notes payable | | $ | (66.3) | | | $ | 327.5 | | Issuance of long-term debt | | | 339.1 | | | | 6,550.0 | | Payment of long-term debt | | | (1,493.8) | | | | (600.1) | | Proceeds from common stock issued on exercised options | | | 241.4 | | | | 99.3 | | Proceeds from common stock issued | | | - | | | | 969.9 | | Purchases of common stock for treasury | | | (1.1) | | | | (601.6) | | Dividends paid | | | (1,181.7) | | | | (1,139.7) | | Investments in redeemable interest | | | 55.7 | | | | - | | Distributions to noncontrolling and redeemable interest holders | | | (38.5) | | | | (51.8) | | Other, net | | | (31.2) | | | | (108.0) | | | | Net cash (used) provided by financing activities | | $ | (2,176.4) | | | $ | 5,445.5 | | | |
Financing activities used $2.2 billion of cash in fiscal 2019 compared to providing $5.4 billion in fiscal 2018. We had $1.2 billion of net debt repayments in fiscal 2019 compared to $6.3 billion of net debt issuances in fiscal 2018, which partially funded the acquisition of Blue Buffalo. For more information on our debt issuances and payments, please refer to Note 8 to the Consolidated Financial Statements in Item 8 of this report.
During fiscal 2019, we received $241 million of net proceeds from common stock issued on exercised options compared to $99 million in fiscal 2018. During fiscal 2018, we received $970 million of net proceeds from common stock issued to fund a portion of the Blue Buffalo acquisition.
Share repurchases in fiscal 2019 were insignificant. During fiscal 2018, we repurchased 11 million shares of our common stock for $602 million.
Dividends paid in fiscal 2019 totaled $1,182 million, or $1.96 per share, consistent with fiscal 2018.
Selected Cash Flows from Joint Ventures
Selected cash flows from our joint ventures are set forth in the following table:
| | | | | | | | | | | Fiscal Year | | Inflow (Outflow), in Millions | | 2019 | | | 2018 | | | | Investments in affiliates, net | | $ | (0.1) | | | | $ (17.3) | | Dividends received | | | 86.7 | | | | 113.2 | | | |
CAPITAL RESOURCES
Total capital consisted of the following:
| | | | | | | | | In Millions | | May 26, 2019 | | | May 27, 2018 | | | | Notes payable | | $ | 1,468.7 | | | $ | 1,549.8 | | Current portion of long-term debt | | | 1,396.5 | | | | 1,600.1 | | Long-term debt | | | 11,624.8 | | | | 12,668.7 | | | | Total debt | | | 14,490.0 | | | | 15,818.6 | | Redeemable interest | | | 551.7 | | | | 776.2 | | Noncontrolling interests | | | 313.2 | | | | 351.3 | | Stockholders’ equity | | | 7,054.5 | | | | 6,141.1 | | | | Total capital | | $ | 22,409.4 | | | $ | 23,087.2 | | | |
The following table details thefee-paid committed and uncommitted credit lines we had available as of May 26, 2019:
| | | | | | | | | In Billions | | Facility Amount | | | Borrowed Amount | | | | Credit facility expiring: | | | | | | | | | May 2022 | | $ | 2.7 | | | $ | - | | June 2019 | | | 0.2 | | | | - | | | | Total committed credit facilities | | | 2.9 | | | | - | | Uncommitted credit facilities | | | 0.7 | | | | 0.2 | | | | Total committed and uncommitted credit facilities | | $ | 3.6 | | | $ | 0.2 | | | |
To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding notes payable. Commercial paper is a continuing source of short-term financing. We have commercial paper programs available to us in the United States and Europe. We also have uncommitted and asset-backed credit lines that support our foreign operations.
Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of May 26, 2019, we were in compliance with all of these covenants.
We have $1,396 million of long-term debt maturing in the next 12 months that is classified as current, including $500 million of 2.2 percent notes due October 2019, €300.0 euro-denominated 0.0 percent notes due January 2020, and €500.0 million euro-denominated floating-rate notes due January 2020. 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 26, 2019, our total debt, including the impact of derivative instruments designated as hedges, was 74 percent in fixed-rate and 26 percent in floating-rate instruments, compared to 73 percent in fixed-rate and 27 percent in floating-rate instruments on May 27, 2018.
Our net debt to operating cash flow ratio declined to 5.0 in fiscal 2019 from 5.4 in fiscal 2018, primarily driven by a decrease in long-term debt. Our netdebt-to-adjusted earnings before net interest, income taxes, depreciation and amortization ratio declined to 3.9 in fiscal 2019 from 4.2 on a pro forma basis in fiscal 2018, consistent with our plans to reduce our leverage following our acquisition of Blue Buffalo (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 26, 2019, the redemption value of the redeemable interest was $552 million which approximates its fair value.
During the second quarter of fiscal 2019, Sodiaal invested $56 million in Yoplait SAS.
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 recentmark-to-market valuation (currently $252 million). On June 1, 2018, the floating preferred return rate on GMC’s Class A Interests was reset to the sum of three-month LIBOR plus 142.5 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.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
As of May 26, 2019, we have issued guarantees and comfort letters of $682 million for the debt and other obligations of consolidated subsidiaries, and guarantees and comfort letters of $134 million for the debt and other obligations ofnon-consolidated affiliates, mainly CPW. In addition,off-balance sheet arrangements are generally limited to the future payments undernon-cancelable operating leases, which totaled $483 million as of May 26, 2019.
As of May 26, 2019, we invested in four variable interest entities (VIEs). None of our VIEs are material to our results of operations, financial condition, or liquidity as of and for the fiscal year ended May 26, 2019.
Our defined benefit plans in the United States are subject to the requirements of the Pension Protection Act (PPA). In the future, the PPA may require us to make additional contributions to our domestic plans. We do not expect to be required to make any contributions in fiscal 2020.
The following table summarizes our future estimated cash payments under existing contractual obligations, including payments due by period:
| | | | | | | | | | | | | | | | | | | | | | | Payments Due by Fiscal Year | | In Millions | | Total | | | 2020 | | | 2021 -22 | | | 2023 -24 | | | 2025 and Thereafter | | | | Long-term debt (a) | | $ | 13,093.0 | | | $ | 1,396.3 | | | $ | 3,338.4 | | | $ | 2,810.2 | | | $ | 5,548.1 | | Accrued interest | | | 92.6 | | | | 92.6 | | | | - | | | | - | | | | - | | Operating leases (b) | | | 482.6 | | | | 120.0 | | | | 186.7 | | | | 112.9 | | | | 63.0 | | Capital leases | | | 0.3 | | | | 0.2 | | | | 0.1 | | | | - | | | | - | | Purchase obligations (c) | | | 2,961.8 | | | | 2,605.1 | | | | 321.9 | | | | 27.6 | | | | 7.2 | | | | Total contractual obligations | | | 16,630.3 | | | | 4,214.2 | | | | 3,847.1 | | | | 2,950.7 | | | | 5,618.3 | | Other long-term obligations (d) | | | 1,302.4 | | | | - | | | | - | | | | - | | | | - | | | | Total long-term obligations | | $ | 17,932.7 | | | $ | 4,214.2 | | | $ | 3,847.1 | | | $ | 2,950.7 | | | $ | 5,618.3 | | | |
(a) | Amounts represent the expected cash payments of our long-term debt and do not include $0.3 million for capital leases or $72.0 million for net unamortized debt issuance costs, premiums and discounts, and fair value adjustments.
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(b) | Operating leases represents the minimum rental commitments undernon-cancelable operating leases.
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(c) | The majority of the purchase obligations represent commitments for raw material and packaging to be utilized in the normal course of business and for consumer marketing spending commitments that support our brands. For purposes of this table, arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty and with short notice (usually 30 days). Any amounts reflected on the Consolidated Balance Sheets as accounts payable and accrued liabilities are excluded from the table above.
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(d) | The fair value of our foreign exchange, equity, commodity, and grain derivative contracts with a payable position to the counterparty was $17.3 million as of May 26, 2019, based on fair market values as of that date. Future changes in market values will impact the amount of cash ultimately paid or received to settle those instruments in the future. Other long-term obligations mainly consist of liabilities for accrued compensation and benefits, including the underfunded status of certain of our defined benefit pension, other postretirement benefit, and postemployment benefit plans, and miscellaneous liabilities. We expect to pay approximately $20 million of benefits from our unfunded postemployment benefit plans and approximately $18 million of deferred compensation in fiscal 2020. We are unable to reliably estimate the amount of these payments beyond fiscal 2020. As of May 26, 2019, our total liability for uncertain tax positions and accrued interest and penalties was $165.1 million.
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SIGNIFICANT 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 significant 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 promotional expenditures, 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.
Revenue Recognition
Our revenues are reported net of variable consideration and consideration payable to our customers, including trade promotion, consumer coupon redemption and other costs, 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 estimated expenses and actual costs are recognized as a change in management estimate in a subsequent period. Our accrued trade liabilities were $484 million as of May 26, 2019, and $500 million as of May 27, 2018. 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 definite 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 26, 2019, we had $20.6 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 so classified 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 2019 assessment of our intangible assets as of the first day of the second quarter of fiscal 2019. As a result of lower sales projections in our long-range plans for the businesses supporting theProgresso, Food Should Taste Good, andMountain High brand intangible assets, we recorded the following impairment charges:
| | | | | | | | | In Millions | | Impairment Charge | | | Fair Value as of Nov. 25, 2018 | | Progresso | | $ | 132.1 | | | $ | 330.0 | | Food Should Taste Good | | | 45.1 | | | | - | | Mountain High | | | 15.4 | | | | - | | | | Total | | $ | 192.6 | | | $ | 330.0 | | | |
Significant assumptions used in that assessment included our long-range cash flow projections for the businesses, royalty rates, weighted-average cost of capital rates, and tax rates.
Our Latin America reporting unit and theYokibrand intangible asset had fair values that were not substantially in excess of the carry value. The excess fair value as of the fiscal 2019 test date of the Latin America reporting unit and theYoki brand intangible asset were as follows:
| | | | | | | | | In Millions | | Carrying Value of Intangible Asset | | | Excess Fair Value as of Fiscal 2019 Test Date | | | | Latin America | | $ | 209.0 | | | | 7% | | Yoki | | $ | 49.1 | | | | 10% | | | |
While having significant coverage as of our fiscal 2019 assessment date, thePillsbury brand intangible asset and U.S. Yogurt reporting unit had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.
Redeemable Interest
In fiscal 2019, we adjusted the redemption value of Sodiaal’s redeemable interest in Yoplait SAS based on a discounted cash flow model. The significant assumptions used to estimate the redemption value 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 26, 2019, the redemption value of the redeemable interest was $552 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 11 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:
| | | | | | | | | | | | | | | Fiscal Year | | | | 2019 | | | 2018 | | | 2017 | | | | Estimated fair values of stock options granted | | $ | 5.35 | | | $ | 6.18 | | | $ | 8.80 | | Assumptions: | | | | | | | | | | | | | Risk-free interest rate | | | 2.9 % | | | | 2.2 % | | | | 1.7 % | | Expected term | | | 8.5 years | | | | 8.2 years | | | | 8.5 years | | Expected volatility | | | 16.3 % | | | | 15.8 % | | | | 17.8 % | | Dividend yield | | | 4.3 % | | | | 3.6 % | | | | 2.9 % | | | |
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. An increase in the expected term by 1 year, leaving all other assumptions constant, would increase the grant date fair value by 9 percent. If all other assumptions are held constant, a one percentage point increase in our fiscal 2019 volatility assumption would increase the grant date fair value of our fiscal 2019 option awards by 8 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 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 quarter of such change. For more information on income taxes, please see Note 14 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 13 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 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 6.6 percent, 6.6 percent, 10.3 percent, 8.4 percent, and 7.9 percent for the 1, 5, 10, 15, and 20 year periods ended May 26, 2019.
On a weighted-average basis, the expected rate of return for all defined benefit plans was 7.25 percent for fiscal 2019, 7.88 percent for fiscal 2018, and 8.17 percent for fiscal 2017. For fiscal 2020, we lowered 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 7.0 percent due to asset allocation changes and expected 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 $70 million for fiscal 2020. 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:
| | | | | | | | | | | | | | | Defined Benefit Pension Plans | | | Other Postretirement Benefit Plans | | | Postemployment Benefit Plans | | | | Effective rate for fiscal 2020 service costs | | | 4.17 | % | | | 4.04 | % | | | 3.51% | | Effective rate for fiscal 2020 interest costs | | | 3.45 | % | | | 3.28 | % | | | 2.84% | | Obligations as of May 31, 2019 | | | 3.91 | % | | | 3.79 | % | | | 3.10% | | Effective rate for fiscal 2019 service costs | | | 4.34 | % | | | 4.27 | % | | | 3.99% | | Effective rate for fiscal 2019 interest costs | | | 3.92 | % | | | 3.80 | % | | | 3.37% | | Obligations as of May 31, 2018 | | | 4.20 | % | | | 4.17 | % | | | 3.60% | | Effective rate for fiscal 2018 service costs | | | 4.37 | % | | | 4.27 | % | | | 3.54% | | Effective rate for fiscal 2018 interest costs | | | 3.45 | % | | | 3.24 | % | | | 2.67% | | | |
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 2020 by approximately $55 million. All obligation-related experience gains and losses are amortized using a straight-line method over the average remaining service period of active plan participants or over the average remaining lifetime of the remaining plan participants if the plan is viewed as “all or almost all” inactive participants.
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 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 6.7 percent for retirees age 65 and over and 6.4 percent for retirees under age 65 at the end of fiscal 2019. 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.
A one percentage point change in the health care cost trend rate would have the following effects:
| | | | | | | | | In Millions | | One Percentage Point Increase | | | One Percentage Point Decrease | | | | Effect on the aggregate of the service and interest cost components in fiscal 2020 | | $ | 1.4 | | | $ | (1.3) | | Effect on the other post retirement accumulated benefit obligation as of May 26, 2019 | | | 43.5 | | | | (40.3) | | | |
Any arising health care claims cost-related experience gain or loss is recognized in the calculation of expected future claims. Once recognized, experience gains and losses are amortized using a straight-line method over the average remaining service period of active plan participants or over the average remaining lifetime of the remaining plan participants if the plan is viewed as “all or almost all” inactive participants.
Financial Statement Impact
In fiscal 2019, we recorded net defined benefit pension, other postretirement benefit, and postemployment benefit plan expense of $24 million compared to $23 million of expense in fiscal 2018 and $56 million of expense in fiscal 2017. As of May 26, 2019, we had cumulative unrecognized actuarial net losses of $2.0 billion on our defined benefit pension plans and cumulative unrecognized actuarial net gains of $81 million on our postretirement and postemployment benefit plans, mainly as the result of liability increases from lower interest rates, partially offset by recent increases in the values of plan assets. These unrecognized actuarial net losses will result in increases in our future pension and postretirement benefit expenses because they currently exceed the corridors defined by GAAP.
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 August 2017, the Financial Accounting Standards Board (FASB) issued new hedge accounting requirements. The new standard amends the hedge accounting recognition and presentation requirements to better align an entity’s risk management activities and financial reporting. The new standard also simplifies the application of hedge accounting guidance. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, which for us is the first quarter of fiscal 2020. We do not expect this guidance to have a material impact on our results of operations or financial position.
In February 2016, the FASB issued new accounting requirements for accounting, presentation and classification of leases. This will result in certain leases being capitalized as a right of use asset with a related liability on our Consolidated Balance Sheets. The requirements of the new standard and subsequent amendments are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, which for us is the first quarter of fiscal 2020. The requirements of the new standard and subsequent amendments allow for either the modified retrospective transition approach, which requires application of the guidance in all comparative periods presented, or the cumulative effect adjustment approach, which requires application of the guidance at the adoption date.
We are in the process of implementing lease accounting software, developing a centralized business process, and implementing corresponding controls. We have substantially completed our analysis of the impact of this standard on our lease portfolio. We will adopt this guidance in the first quarter of fiscal 2020 using the cumulative effect adjustment approach and electing certain practical expedients permitted under the transition guidance, including not reassessing whether existing contracts contain leases and carrying forward the historical
classification of those leases. In addition, we will also elect to not recognize leases with an initial term of 12 months or less on our Consolidated Balance Sheets. We do not expect the effects to the Consolidated Financial Statements to be pervasive. We estimate that we will record right of use assets and related liabilities of approximately $400 to $500 million, subject to the completion of our assessment and the fluctuation of our lease portfolio and discount rates. We do not expect this guidance to have a material impact on our Consolidated Statements of Earnings or our Consolidated Statements of Cash Flows. See Note 15 to the Consolidated Financial Statements in Item 8 of this report for noncancelable future lease commitments.
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 thesenon-GAAP financial measures, we are providing below a reconciliation of the differences between thenon-GAAP measure and the most directly comparable GAAP measure, an explanation of why we believe thenon-GAAP measure provides useful information to investors, and any additional material purposes for which our management or Board of Directors uses thenon-GAAP measure. Thesenon-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 theyear-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 onyear-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.
Net Sales Growth Rate on a Constant-currency Basis
We believe this measure of net sales provides useful information to investors because it provides transparency to the underlying performance by excluding the effect that foreign currency exchange rate fluctuations have onyear-to-year comparability given volatility in foreign currency exchange markets.
Net sales growth rate on a constant-currency basis is calculated as follows:
| | | | | | | Fiscal
2019 | | Percentage change in net sales as reported
| | | 7 % | | Impact of foreign currency exchange
| | | (2) pts | | | | Percentage change in net sales on a constant-currency basis
| | | 9 % | | | |
Adjusted Diluted EPS and Related Constant-currency Growth Rate
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 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year | | Per Share Data | | 2019 | | | 2018 | | | 2019 vs. 2018 Change | | | 2017 | | | 2016 | | | 2015 | | | | Diluted earnings per share, as reported | | $ | 2.90 | | | $ | 3.64 | | | | (20) % | | | $ | 2.77 | | | $ | 2.77 | | | $ | 1.97 | | Net tax benefit (a) | | | (0.01 | ) | | | (0.89) | | | | | | | | - | | | | - | | | | - | | Tax items (a) | | | (0.12 | ) | | | 0.07 | | | | | | | | - | | | | - | | | | 0.13 | | Mark-to-market effects (b) | | | 0.05 | | | | (0.04) | | | | | | | | (0.01) | | | | (0.07) | | | | 0.09 | | Divestitures loss (gain) (c) | | | 0.03 | | | | - | | | | | | | | 0.01 | | | | (0.10) | | | | - | | Acquisition transaction and integration costs (c) | | | 0.03 | | | | 0.10 | | | | | | | | - | | | | - | | | | 0.02 | | Restructuring charges (d) | | | 0.10 | | | | 0.11 | | | | | | | | 0.26 | | | | 0.26 | | | | 0.35 | | Project-related costs (d) | | | - | | | | 0.01 | | | | | | | | 0.05 | | | | 0.06 | | | | 0.01 | | Asset impairments (d) | | | 0.26 | | | | 0.11 | | | | | | | | - | | | | - | | | | 0.28 | | Investment valuation adjustments (e) | | | (0.03 | ) | | | - | | | | | | | | - | | | | - | | | | - | | CPW restructuring charges (f) | | | 0.02 | | | | - | | | | | | | | - | | | | - | | | | - | | Legal recovery (g) | | | (0.01 | ) | | | - | | | | | | | | - | | | | - | | | | - | | Venezuela currency devaluation | | | - | | | | - | | | | | | | | - | | | | - | | | | 0.01 | | | | | | | | | | | | Adjusted diluted earnings per share | | $ | 3.22 | | | $ | 3.11 | | | | 4 % | | | $ | 3.08 | | | $ | 2.92 | | | $ | 2.86 | | | | | | | | | | | | Foreign currency exchange impact | | | | | | | | | | | Flat | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted diluted earnings per share growth, on a constant-currency basis | | | | | | | | | | | 4 % | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | See Note 14 to the Consolidated Financial Statements in Item 8 of this report.
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(b) | See Note 7 to the Consolidated Financial Statements in Item 8 of this report.
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(c) | See Note 3 to the Consolidated Financial Statements in Item 8 of this report.
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(d) | See Note 4 to the Consolidated Financial Statements in Item 8 of this report.
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(e) | Valuation gains on certain corporate investments.
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(f) | The CPW restructuring charges are related to initiatives designed to improve profitability and growth that were approved in fiscal 2018 and 2019.
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(g) | Legal recovery related to our Yoplait SAS subsidiary.
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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.
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:
| | | | | In Millions | | Fiscal 2019 | | | | Net earnings, including earnings attributable to redeemable
and noncontrolling interests, as reported
| | $ | 1,786.2 | | | | Net tax benefit (a)
| | $ | (7.2) | | Tax item (a)
| | | (72.9) | | Mark-to-market effects, net of tax (b)
| | | 27.7 | | Acquisition integration costs, net of tax (c)
| | | 19.7 | | Divestitures loss, net of tax (c)
| | | 16.4 | | Restructuring charges, net of tax (d)
| | | 63.0 | | Project-related costs, net of tax (d)
| | | 1.1 | | Asset impairments, net of tax (d)
| | | 159.7 | | Hyperinflationary accounting, net of tax (e)
| | | 3.2 | | Investment valuation adjustments, net of tax (f)
| | | (17.6) | | Legal recovery, net of tax (g)
| | | (10.8) | | CPW restructuring costs, net of tax (h)
| | | 11.1 | | | | Adjusted net earnings, including earnings attributable to
redeemable and noncontrolling interests
| | $ | 1,979.6 | | | | | | | | | | | Net cash provided by operating activities
| | $ | 2,807.0 | | Purchases of land, buildings, and equipment
| | | (537.6) | | | | Free cash flow
| | $ | 2,269.4 | | | | | | | | | | | Net cash provided by operating activities conversion rate
| | | 157% | | | | Free cash flow conversion rate
| | | 115% | | | |
(a) | See Note 14 to the Consolidated Financial Statements in Item 8 of this report.
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(b) | See Note 7 to the Consolidated Financial Statements in Item 8 of this report.
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(c) | See Note 3 to the Consolidated Financial Statements in Item 8 of this report.
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(d) | See Note 4 to the Consolidated Financial Statements in Item 8 of this report.
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(e) | Impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019.
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(f) | Valuation gains on certain corporate investments.
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(g) | Legal recovery related to our Yoplait SAS subsidiary.
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(h) | The CPW restructuring charges are related to initiatives designed to improve profitability and growth that were approved in fiscal 2018 and 2019.
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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.
Constant-currencyAfter-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 onyear-to-year comparability given volatility in foreign currency exchange markets.
After-tax earnings from joint ventures growth rates on a constant-currency basis are calculated as follows:
| | | | | | | Fiscal | | | | 2019 | | | | Percentage change inafter-tax earnings from joint ventures as reported
| | | (15) % | | Impact of foreign currency exchange
| | | (1) pt | | | | Percentage change inafter-tax earnings from joint ventures on a constant-currency basis
| | | (14) % | | | |
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 onyear-to-year comparability given volatility in foreign currency exchange markets.
Net sales growth rates for our Canada operating unit on a constant-currency basis are calculated as follows:
| | | | | | | Fiscal | | | | 2019 | | | | Percentage change in net sales as reported
| | | (7) % | | Impact of foreign currency exchange
| | | (3) pts | | | | Percentage change in net sales on a constant-currency basis
| | | (4) % | | | |
Constant-currency Segment Operating Profit Growth Rates
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 onyear-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:
| | | | | | | | | | | | | | | Fiscal 2019 | | | | Percentage Change in Operating Profit as Reported | | | Impact of Foreign Currency Exchange | | | Percentage Change in Operating Profit on Constant-Currency Basis | | | | North America Retail | | | 3 % | | | | Flat | | | | 3 % | | Europe & Australia | | | (13) | | | | (5) pts | | | | (8) | | Asia & Latin America | | | 83 % | | | | 12 pts | | | | 71 % | | | |
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | | | May 26, 2019 | | | May 27, 2018 | | | May 28, 2017 | | | May 29, 2016 | | | May 31, 2015 | | In Millions | | Pretax Earnings (a) | | | Income Taxes | | | Pretax Earnings (a) | | | Income Taxes | | | Pretax Earnings (a) | | | Income Taxes | | | Pretax Earnings (a) | | | Income Taxes | | | Pretax Earnings (a) | | | Income Taxes | | | | As reported | | $ | 2,082.0 | | | $ | 367.8 | | | $ | 2,135.6 | | | $ | 57.3 | | | $ | 2,271.3 | | | $ | 655.2 | | | $ | 2,403.6 | | | $ | 755.2 | | | $ | 1,761.9 | | | $ | 586.8 | | Net tax benefit (b) | | | - | | | | 7.2 | | | | - | | | | 523.5 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Tax items (b) | | | - | | | | 72.9 | | | | - | | | | (40.9) | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (78.6) | | Mark-to-market effects (c) | | | 36.0 | | | | 8.3 | | | | (32.1 | ) | | | (10.0) | | | | (13.9 | ) | | | (5.1) | | | | (62.8 | ) | | | (23.2) | | | | 89.7 | | | | 33.2 | | Divestitures loss (gain) (d) | | | 30.0 | | | | 13.6 | | | | - | | | | - | | | | 13.5 | | | | 4.3 | | | | (148.2 | ) | | | (82.2) | | | | - | | | | - | | Acquisition transaction and integration costs (d) | | | 25.6 | | | | 5.9 | | | | 83.9 | | | | 25.4 | | | | - | | | | - | | | | - | | | | - | | | | 16.0 | | | | 5.6 | | Restructuring charges (e) | | | 77.6 | | | | 14.6 | | | | 82.7 | | | | 21.4 | | | | 224.1 | | | | 70.2 | | | | 229.8 | | | | 69.0 | | | | 343.5 | | | | 125.8 | | Project-related costs (e) | | | 1.3 | | | | 0.2 | | | | 11.3 | | | | 3.3 | | | | 43.9 | | | | 15.7 | | | | 57.5 | | | | 20.7 | | | | 13.2 | | | | 4.9 | | Asset impairments (e) | | | 207.4 | | | | 47.7 | | | | 96.9 | | | | 32.0 | | | | - | | | | - | | | | - | | | | - | | | | 260.0 | | | | 83.1 | | Hyperinflationary accounting (f) | | | 3.2 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Investment valuation adjustments (g) | | | (22.8 | ) | | | (5.2) | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Legal recovery (h) | | | (16.2 | ) | | | (5.4) | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Venezuela currency devaluation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 8.0 | | | | - | | | | As adjusted | | $ | 2,424.1 | | | $ | 527.6 | | | $ | 2,378.3 | | | $ | 612.0 | | | $ | 2,538.9 | | | $ | 740.3 | | | $ | 2,479.9 | | | $ | 739.5 | | | $ | 2,492.3 | | | $ | 760.8 | | | | Effective tax rate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As reported | | | | | | | 17.7% | | | | | | | | 2.7% | | | | | | | | 28.8% | | | | | | | | 31.4% | | | | | | | | 33.3% | | As adjusted | | | | | | | 21.8% | | | | | | | | 25.7% | | | | | | | | 29.2% | | | | | | | | 29.8% | | | | | | | | 30.5% | | | | Sum of adjustments to income taxes | | | | | | $ | 159.8 | | | | | | | $ | 554.7 | | | | | | | $ | 85.1 | | | | | | | $ | (15.7) | | | | | | | $ | 174.0 | | | | Average number of common shares - diluted EPS | | | | | | | 605.4 | | | | | | | | 585.7 | | | | | | | | 598.0 | | | | | | | | 611.9 | | | | | | | | 618.8 | | | | Impact of income tax adjustments on Adjusted diluted EPS | | | | | | $ | (0.26) | | | | | | | $ | (0.95) | | | | | | | $ | (0.14) | | | | | | | $ | 0.03 | | | | | | | $ | (0.28) | | | |
(a) | Earnings before income taxes and after-tax earnings from joint ventures.
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(b) | See Note 14 to the Consolidated Financial Statements in Item 8 of this report.
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(c) | See Note 7 to the Consolidated Financial Statements in Item 8 of this report.
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(d) | See Note 3 to the Consolidated Financial Statements in Item 8 of this report.
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(e) | See Note 4 to the Consolidated Financial Statements in Item 8 of this report.
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(f) | Impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019.
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(g) | Valuation gains on certain corporate investments.
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(h) | Legal recovery related to our Yoplait SAS subsidiary.
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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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year | | Percent of Net Sales | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | | | | Operating profit as reported | | $ | 2,515.9 | | | | 14.9 % | | | $ | 2,419.9 | | | | 15.4 % | | | $ | 2,492.1 | | | | 16.0 % | | | $ | 2,719.1 | | | | 16.4 % | | | $ | 2,071.8 | | | | 11.8 % | | Mark-to-market effects (a) | | | 36.0 | | | | 0.2 % | | | | (32.1 | ) | | | (0.2)% | | | | (13.9 | ) | | | (0.1)% | | | | (62.8 | ) | | | (0.4)% | | | | 89.7 | | | | 0.5 % | | Divestitures loss (gain) (b) | | | 30.0 | | | | 0.2 % | | | | - | | | | - % | | | | 6.5 | | | | - % | | | | (148.2 | ) | | | (0.9)% | | | | - | | | | - % | | Acquisition transaction and integration costs (b) | | | 25.6 | | | | 0.1 % | | | | 34.0 | | | | 0.2 % | | | | - | | | | - % | | | | - | | | | - % | | | | 16.0 | | | | 0.1 % | | Restructuring charges (c) | | | 77.6 | | | | 0.5 % | | | | 82.7 | | | | 0.5 % | | | | 221.9 | | | | 1.4 % | | | | 209.3 | | | | 1.3% | | | | 305.7 | | | | 1.7 % | | Project-related costs (c) | | | 1.3 | | | | - % | | | | 11.3 | | | | 0.1 % | | | | 43.9 | | | | 0.3 % | | | | 57.5 | | | | 0.4% | | | | 13.2 | | | | 0.1 % | | Asset impairments (c) | | | 207.4 | | | | 1.2 % | | | | 96.9 | | | | 0.6 % | | | | - | | | | - % | | | | - | | | | - % | | | | 260.0 | | | | 1.5 % | | Hyperinflationary accounting (d) | | | 3.2 | | | | - % | | | | - | | | | - % | | | | - | | | | - % | | | | - | | | | - % | | | | - | | | | - % | | Investment valuation adjustments (e) | | | (22.8 | ) | | | (0.1)% | | | | - | | | | - % | | | | - | | | | - % | | | | - | | | | - % | | | | - | | | | - % | | Legal recovery (f) | | | (16.2 | ) | | | (0.1)% | | | | - | | | | - % | | | | - | | | | - % | | | | - | | | | - % | | | | - | | | | - % | | Venezuela currency devaluation | | | - | | | | - % | | | | - | | | | - % | | | | - | | | | - % | | | | - | | | | - % | | | | 8.0 | | | | - % | | | | Adjusted operating profit | | $ | 2,858.0 | | | | 16.9 % | | | $ | 2,612.7 | | | | 16.6 % | | | $ | 2,750.5 | | | | 17.6 % | | | $ | 2,774.9 | | | | 16.8 % | | | $ | 2,764.4 | | | | 15.7 % | | | |
(a) | See Note 7 to the Consolidated Financial Statements in Item 8 of this report.
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(b) | See Note 3 to the Consolidated Financial Statements in Item 8 of this report.
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(c) | See Note 4 to the Consolidated Financial Statements in Item 8 of this report.
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(d) | Impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019.
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(e) | Valuation gains on certain corporate investments.
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(f) | Legal recovery related to our Yoplait SAS subsidiary.
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Adjusted Operating Profit Growth on a Constant-currency Basis
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 comparableyear-to-year basis. Additionally, the measure is evaluated on a constant-currency basis by excluding the effect that foreign currency exchange rate fluctuations have onyear-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:
| | | | | | | | | | | | | | | Fiscal Year | | | | 2019 | | | 2018 | | | Change | | Operating profit as reported | | $ | 2,515.9 | | | $ | 2,419.9 | | | | 4 % | | Mark-to-market effects (a) | | | 36.0 | | | | (32.1 | ) | | | | | Divestitures loss (b) | | | 30.0 | | | | - | | | | | | Acquisition transaction and integration costs (b) | | | 25.6 | | | | 34.0 | | | | | | Restructuring charges (c) | | | 77.6 | | | | 82.7 | | | | | | Project-related costs (c) | | | 1.3 | | | | 11.3 | | | | | | Asset impairments (c) | | | 207.4 | | | | 96.9 | | | | | | Hyperinflationary accounting (d) | | | 3.2 | | | | - | | | | | | Investment valuation adjustments (e) | | | (22.8 | ) | | | - | | | | | | Legal recovery (f) | | | (16.2 | ) | | | - | | | | | | | | | | | | Adjusted operating profit | | $ | 2,858.0 | | | $ | 2,612.7 | | | | 9 % | | | | | | | | Foreign currency exchange impact | | | | | | | | | | | (1) pt | | | | Adjusted operating profit growth, on a constant-currency basis | | | | | | | | | | | 10 % | | | |
(a) | See Note 7 to the Consolidated Financial Statements in Item 8 of this report.
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(b) | See Note 3 to the Consolidated Financial Statements in Item 8 of this report.
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(c) | See Note 4 to the Consolidated Financial Statements in Item 8 of this report.
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(d) | Impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019.
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(e) | Valuation gains on certain corporate investments.
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(f) | Legal recovery related to our Yoplait SAS subsidiary.
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NetDebt-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 attributable to General Mills on a pro forma basis, its GAAP equivalent, as well as the calculation of the netdebt-to-adjusted EBITDA ratio are as follows:
| | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | Total debt (a) | | $ | 14,490.0 | | | $ | 15,818.6 | | Cash | | | 450.0 | | | | 399.0 | | | | Net debt | | $ | 14,040.0 | | | $ | 15,419.6 | | | | | | | Net earnings attributable to General Mills, as reported (b) | | $ | 1,752.7 | | | $ | 2,252.4 | | Net earnings attributable to redeemable and noncontrolling interests | | | 33.5 | | | | 32.0 | | After-tax earnings from joint ventures | | | (72.0 | ) | | | (84.7 | ) | Income taxes | | | 367.8 | | | | 104.3 | | | | Earnings before income taxes andafter-tax earnings from joint ventures | | | 2,082.0 | | | | 2,304.0 | | Interest, net | | | 521.8 | | | | 527.8 | | Depreciation and amortization | | | 620.1 | | | | 642.6 | | | | EBITDA | | | 3,223.9 | | | | 3,474.4 | | Asset impairments (c) | | | 207.4 | | | | 96.9 | | Restructuring charges (c) | | | 77.6 | | | | 82.7 | | Project-related costs (c) | | | 1.3 | | | | 11.3 | | Mark-to-market effects (d) | | | 36.0 | | | | (32.1 | ) | Divestitures loss (e) | | | 30.0 | | | | - | | Acquisition integration costs (e) | | | 25.6 | | | | - | | Investment valuation adjustments (f) | | | (22.8 | ) | | | - | | Legal recovery (g) | | | (16.2 | ) | | | - | | Hyperinflationary accounting (h) | | | 3.2 | | | | - | | | | Adjusted EBITDA | | $ | 3,566.0 | | | $ | 3,633.2 | | | | | | | | | | | | | | | Netdebt-to-adjusted EBITDA ratio | | | 3.9 | | | | 4.2 | | | |
(a) | Notes payable and long-term debt, including current portion.
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(b) | Fiscal 2018 net earnings attributable to General Mills is a pro forma figure presented in Note 3 to the Consolidated Financial Statements in Item 8 of this report.
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(c) | See Note 4 to the Consolidated Financial Statements in Item 8 of this report.
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(d) | See Note 7 to the Consolidated Financial Statements in Item 8 of this report.
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(e) | See Note 3 to the Consolidated Financial Statements in Item 8 of this report.
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(f) | Valuation gains on certain corporate investments.
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(g) | Legal recovery related to our Yoplait SAS subsidiary.
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(h) | Impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019.
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Forward-Looking Financial Measures
Our fiscal 2020 outlook for organic net sales growth and adjusted operating profit and adjusted diluted EPS arenon-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 integration costs, and commoditymark-to-market effects. Our fiscal 2020 outlook for organic net sales growth also excludes the effect of a 53rd week, acquisitions, and divestitures. We are not able to reconcile these forward-lookingnon-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 of acquisitions, divestitures and restructuring actions throughout fiscal 2020. The unavailable information could have a significant impact on our fiscal 2020 GAAP financial results.
For fiscal 2020, we currently expect: foreign currency exchange rates (based on a blend of forward and forecasted rates and hedge positions), acquisitions, divestitures, and a 53rd week to increase net sales growth by approximately 1 to 2 percentage points; 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 $49 million.
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: 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, including our acquisition of Blue Buffalo and issues in the integration of Blue Buffalo and retention of key management and employees; unfavorable reaction to our acquisition of Blue Buffalo by customers, competitors, suppliers, and employees; 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, and energy; disruptions or inefficiencies in the supply chain; 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 7A- Quantitative and Qualitative Disclosures About Market Risk
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 clear controls on these activities. The counterparties in these transactions are generally highly rated institutions. We establish credit limits for each counterparty. Our hedging transactions include but are not limited to a variety of derivative financial instruments. For information on interest rate, foreign exchange, commodity price, and equity instrument risk, please see Note 78 to the Consolidated Financial Statements in Item 8 of this report.
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 RiskMetrics™ data set. The calculations are not intended to represent actual losses in fair value that we expect to incur. Further, since the hedging instrument (the derivative) inversely correlates with the underlying exposure, we would expect that any loss or gain in the fair value of
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 26, 201930, 2021. | | In Millions | | May 30, 2021 | | Average During Fiscal 2021 | | May 31, 2020 | Interest rate instruments | $ | 37.4 | $ | 64.1 | $ | 78.8 | Foreign currency instruments | | 25.6 | | 26.7 | | 19.3 | Commodity instruments | | 4.2 | | 4.5 | | 2.6 | Equity instruments | | 2.8 | | 4.3 | | 5.0 |
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
Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors General Mills, Inc.:
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 27, 2018,31, 2020, the related consolidated statements of earnings, comprehensive income, total equity and redeemable interest, and cash flows for each of the years in the three-year period ended May 30, 2021, and the averagerelated notes and financial statement schedule II (collectively, the consolidated financial statements). We also have audited the Company’s 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.
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
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 duringof other points within a range of potential assumptions. We evaluated the year ended May 26, 2019.revenue growth rates and operating margin assumptions by comparing them to recent financial performance and external market and industry data. We evaluated whether these assumptions were consistent with evidence obtained in other areas of the audit. We involved professionals with specialized skills and knowledge, who assisted in the evaluation of the Company’s discount rates and royalty rates by comparing them against rate ranges that were independently developed using publicly available market data for comparable entities. | | | | | | | | | | | | | | | Fair Value Impact | | In Millions | | May 26, 2019 | | | Average during fiscal 2019 | | | May 27, 2018 | | Interest rate instruments | | $ | 74.4 | | | $ | 46.1 | | | $ | 33.2 | | Foreign currency instruments | | | 16.8 | | | | 19.0 | | | | 21.3 | | Commodity instruments | | | 4.1 | | | | 2.5 | | | | 1.9 | | Equity instruments | | | 2.3 | | | | 2.2 | | | | 2.0 | | | |
/s/ KPMG LLP
We have served as the Company’s auditor since 1928.
Minneapolis, Minnesota June 30, 2021
Consolidated Statements of Earnings | GENERAL MILLS, INC. AND SUBSIDIARIES | (In Millions, Except per Share Data) | | | | | | | | | | | Fiscal Year | | 2021 | | 2020 | | 2019 | Net sales | $ | 18,127.0 | | $ | 17,626.6 | | $ | 16,865.2 | Cost of sales | | 11,678.7 | | | 11,496.7 | | | 11,108.4 | Selling, general, and administrative expenses | | 3,079.6 | | | 3,151.6 | | | 2,935.8 | Divestitures loss | | 53.5 | | | 0 | | | 30.0 | Restructuring, impairment, and other exit costs | | 170.4 | | | 24.4 | | | 275.1 | Operating profit | | 3,144.8 | | | 2,953.9 | | | 2,515.9 | Benefit plan non-service income | | (132.9) | | | (112.8) | | | (87.9) | Interest, net | | 420.3 | | | 466.5 | | | 521.8 | Earnings before income taxes and after-tax earnings from joint ventures | | 2,857.4 | | | 2,600.2 | | | 2,082.0 | Income taxes | | 629.1 | | | 480.5 | | | 367.8 | After-tax earnings from joint ventures | | 117.7 | | | 91.1 | | | 72.0 | Net earnings, including earnings attributable to redeemable and noncontrolling interests | | 2,346.0 | | | 2,210.8 | | | 1,786.2 | Net earnings attributable to redeemable and noncontrolling interests | | 6.2 | | | 29.6 | | | 33.5 | Net earnings attributable to General Mills | $ | 2,339.8 | | $ | 2,181.2 | | $ | 1,752.7 | Earnings per share — basic | $ | 3.81 | | $ | 3.59 | | $ | 2.92 | Earnings per share — diluted | $ | 3.78 | | $ | 3.56 | | $ | 2.90 | Dividends per share | $ | 2.02 | | $ | 1.96 | | $ | 1.96 | | | | | | | | | | See accompanying notes to consolidated financial statements. | | | | | | | | |
Consolidated Statements of Comprehensive Income | GENERAL MILLS, INC. AND SUBSIDIARIES | (In Millions) | | | | | | | | | | | Fiscal Year | | 2021 | | 2020 | | 2019 | Net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 2,346.0 | | $ | 2,210.8 | | $ | 1,786.2 | Other comprehensive income (loss), net of tax: | | | | | | | | | Foreign currency translation | | 175.1 | | | (169.1) | | | (82.8) | Net actuarial income (loss) | | 353.4 | | | (224.6) | | | (253.4) | Other fair value changes: | | | | | | | | | Hedge derivatives | | (20.7) | | | 3.2 | | | 12.1 | Reclassification to earnings: | | | | | | | | | Securities | | 0 | | | 0 | | | (2.0) | Hedge derivatives | | 13.5 | | | 4.1 | | | 0.9 | Amortization of losses and prior service costs | | 78.9 | | | 77.9 | | | 84.6 | Other comprehensive income (loss), net of tax | | 600.2 | | | (308.5) | | | (240.6) | Total comprehensive income | | 2,946.2 | | | 1,902.3 | | | 1,545.6 | Comprehensive income (loss) attributable to redeemable and noncontrolling interests | | 121.2 | | | 10.1 | | | (10.7) | Comprehensive income attributable to General Mills | $ | 2,825.0 | | $ | 1,892.2 | | $ | 1,556.3 | | | | | | | | | | See accompanying notes to consolidated financial statements. | | | | | | | | |
Consolidated Balance Sheets | GENERAL MILLS, INC. AND SUBSIDIARIES | (In Millions, Except Par Value) | | May 30, 2021 | | May 31, 2020 | ASSETS | | | | | | Current assets: | | | | | | Cash and cash equivalents | $ | 1,505.2 | | $ | 1,677.8 | Receivables | | 1,638.5 | | | 1,615.1 | Inventories | | 1,820.5 | | | 1,426.3 | Prepaid expenses and other current assets | | 790.3 | | | 402.1 | Total current assets | | 5,754.5 | | | 5,121.3 | Land, buildings, and equipment | | 3,606.8 | | | 3,580.6 | Goodwill | | 14,062.4 | | | 13,923.2 | Other intangible assets | | 7,150.6 | | | 7,095.8 | Other assets | | 1,267.6 | | | 1,085.8 | Total assets | $ | 31,841.9 | | $ | 30,806.7 | | | | | | | LIABILITIES AND EQUITY | | | | | | Current liabilities: | | | | | | Accounts payable | $ | 3,653.5 | | $ | 3,247.7 | Current portion of long-term debt | | 2,463.8 | | | 2,331.5 | Notes payable | | 361.3 | | | 279.0 | Other current liabilities | | 1,787.2 | | | 1,633.3 | Total current liabilities | | 8,265.8 | | | 7,491.5 | Long-term debt | | 9,786.9 | | | 10,929.0 | Deferred income taxes | | 2,118.4 | | | 1,947.1 | Other liabilities | | 1,292.7 | | | 1,545.0 | Total liabilities | | 21,463.8 | | | 21,912.6 | Redeemable interest | | 604.9 | | | 544.6 | Stockholders' equity: | | | | | | Common stock, 754.6 shares issued, $0.10 par value | | 75.5 | | | 75.5 | Additional paid-in capital | | 1,365.5 | | | 1,348.6 | Retained earnings | | 17,069.8 | | | 15,982.1 | Common stock in treasury, at cost, shares of 146.9 and 144.8 | | (6,611.2) | | | (6,433.3) | Accumulated other comprehensive loss | | (2,429.2) | | | (2,914.4) | Total stockholders' equity | | 9,470.4 | | | 8,058.5 | Noncontrolling interests | | 302.8 | | | 291.0 | Total equity | | 9,773.2 | | | 8,349.5 | Total liabilities and equity | $ | 31,841.9 | | $ | 30,806.7 | | | | | | | See accompanying notes to consolidated financial statements. | | | | | |
Consolidated Statements of Total Equity and Redeemable Interest | GENERAL MILLS, INC. AND SUBSIDIARIES | (In Millions, Except per Share Data) | | | | | | | | | | | | | | | | | Fiscal Year | | 2021 | | 2020 | | 2019 | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | Total equity, beginning balance | | | $ | 8,349.5 | | | | $ | 7,367.7 | | | | $ | 6,492.4 | Common stock, 1 billion shares authorized, $0.10 par value | 754.6 | | | 75.5 | | 754.6 | | | 75.5 | | 754.6 | | | 75.5 | Additional paid-in capital: | | | | | | | | | | | | | | | Beginning balance | | | | 1,348.6 | | | | | 1,386.7 | | | | | 1,202.5 | Stock compensation plans | | | | 6.2 | | | | | (12.1) | | | | | (96.4) | Unearned compensation related to stock unit awards | | | | (78.0) | | | | | (85.7) | | | | | (71.3) | Earned compensation | | | | 88.5 | | | | | 92.8 | | | | | 82.8 | Decrease (increase) in redemption value of redeemable interest | | | | 0.2 | | | | | (33.1) | | | | | 269.1 | Ending balance | | | | 1,365.5 | | | | | 1,348.6 | | | | | 1,386.7 | Retained earnings: | | | | | | | | | | | | | | | Beginning balance | | | | 15,982.1 | | | | | 14,996.7 | | | | | 14,459.6 | Comprehensive income | | | | 2,339.8 | | | | | 2,181.2 | | | | | 1,752.7 | Cash dividends declared ($2.02, $1.96, and $1.96 per share) | | | | (1,246.4) | | | | | (1,195.8) | | | | | (1,181.7) | Adoption of revenue recognition accounting requirements | | | | 0 | | | | | 0 | | | | | (33.9) | Adoption of current expected credit loss accounting requirements | | | | (5.7) | | | | | 0 | | | | | 0 | Ending balance | | | | 17,069.8 | | | | | 15,982.1 | | | | | 14,996.7 | Common stock in treasury: | | | | | | | | | | | | | | | Beginning balance | (144.8) | | | (6,433.3) | | (152.7) | | | (6,779.0) | | (161.5) | | | (7,167.5) | Shares purchased | (5.0) | | | (301.4) | | (0.1) | | | (3.4) | | 0 | | | (1.1) | Stock compensation plans | 2.9 | | | 123.5 | | 8.0 | | | 349.1 | | 8.8 | | | 389.6 | Ending balance | (146.9) | | | (6,611.2) | | (144.8) | | | (6,433.3) | | (152.7) | | | (6,779.0) | Accumulated other comprehensive loss: | | | | | | | | | | | | | | | Beginning balance | | | | (2,914.4) | | | | | (2,625.4) | | | | | (2,429.0) | Comprehensive income (loss) | | | | 485.2 | | | | | (289.0) | | | | | (196.4) | Ending balance | | | | (2,429.2) | | | | | (2,914.4) | | | | | (2,625.4) | Noncontrolling interests: | | | | | | | | | | | | | | | Beginning balance | | | | 291.0 | | | | | 313.2 | | | | | 351.3 | Comprehensive income | | | | 38.0 | | | | | 10.3 | | | | | 0.4 | Distributions to noncontrolling interest holders | | | | (26.2) | | | | | (32.5) | | | | | (38.5) | Ending balance | | | | 302.8 | | | | | 291.0 | | | | | 313.2 | Total equity, ending balance | | | $ | 9,773.2 | | | | $ | 8,349.5 | | | | $ | 7,367.7 | Redeemable interest: | | | | | | | | | | | | | | | Beginning balance | | | $ | 544.6 | | | | $ | 551.7 | | | | $ | 776.2 | Comprehensive income (loss) | | | | 83.2 | | | | | (0.2) | | | | | (11.1) | Increase in investment in redeemable interest | | | | 0 | | | | | 0 | | | | | 55.7 | (Decrease) increase in redemption value of redeemable interest | | | | (0.2) | | | | | 33.1 | | | | | (269.1) | Distributions to redeemable interest holder | | | | (22.7) | | | | | (40.0) | | | | | 0 | Ending balance | | | $ | 604.9 | | | | $ | 544.6 | | | | $ | 551.7 | | | | | | | | | | | | | | | | See accompanying notes to consolidated financial statements. | | | | | | | | | | | | | | |
Consolidated Statements of Cash Flows | GENERAL MILLS, INC. AND SUBSIDIARIES | (In Millions) | | Fiscal Year | | 2021 | | 2020 | | 2019 | Cash Flows - Operating Activities | | | | | | | | | Net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 2,346.0 | | $ | 2,210.8 | | $ | 1,786.2 | Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | Depreciation and amortization | | 601.3 | | | 594.7 | | | 620.1 | After-tax earnings from joint ventures | | (117.7) | | | (91.1) | | | (72.0) | Distributions of earnings from joint ventures | | 95.2 | | | 76.5 | | | 86.7 | Stock-based compensation | | 89.9 | | | 94.9 | | | 84.9 | Deferred income taxes | | 118.8 | | | (29.6) | | | 93.5 | Pension and other postretirement benefit plan contributions | | (33.4) | | | (31.1) | | | (28.8) | Pension and other postretirement benefit plan costs | | (33.6) | | | (32.3) | | | 6.1 | Divestitures loss | | 53.5 | | | 0 | | | 30.0 | Restructuring, impairment, and other exit costs | | 150.9 | | | 43.6 | | | 235.7 | Changes in current assets and liabilities, excluding the effects of divestitures | | (155.9) | | | 793.9 | | | (7.5) | Other, net | | (131.8) | | | 45.9 | | | (27.9) | Net cash provided by operating activities | | 2,983.2 | | | 3,676.2 | | | 2,807.0 | Cash Flows - Investing Activities | | | | | | | | | Purchases of land, buildings, and equipment | | (530.8) | | | (460.8) | | | (537.6) | Investments in affiliates, net | | 15.5 | | | (48.0) | | | 0.1 | Proceeds from disposal of land, buildings, and equipment | | 2.7 | | | 1.7 | | | 14.3 | Proceeds from divestitures | | 2.9 | | | 0 | | | 26.4 | Other, net | | (3.1) | | | 20.9 | | | (59.7) | Net cash used by investing activities | | (512.8) | | | (486.2) | | | (556.5) | Cash Flows - Financing Activities | | | | | | | | | Change in notes payable | | 71.7 | | | (1,158.6) | | | (66.3) | Issuance of long-term debt | | 1,576.5 | | | 1,638.1 | | | 339.1 | Payment of long-term debt | | (2,609.0) | | | (1,396.7) | | | (1,493.8) | Debt exchange participation incentive cash payment | | (201.4) | | | 0 | | | 0 | Proceeds from common stock issued on exercised options | | 74.3 | | | 263.4 | | | 241.4 | Purchases of common stock for treasury | | (301.4) | | | (3.4) | | | (1.1) | Dividends paid | | (1,246.4) | | | (1,195.8) | | | (1,181.7) | Investments in redeemable interest | | 0 | | | 0 | | | 55.7 | Distributions to noncontrolling and redeemable interest holders | | (48.9) | | | (72.5) | | | (38.5) | Other, net | | (30.9) | | | (16.0) | | | (31.2) | Net cash used by financing activities | | (2,715.5) | | | (1,941.5) | | | (2,176.4) | Effect of exchange rate changes on cash and cash equivalents | | 72.5 | | | (20.7) | | | (23.1) | (Decrease) increase in cash and cash equivalents | | (172.6) | | | 1,227.8 | | | 51.0 | Cash and cash equivalents - beginning of year | | 1,677.8 | | | 450.0 | | | 399.0 | Cash and cash equivalents - end of year | $ | 1,505.2 | | $ | 1,677.8 | | $ | 450.0 | Cash flow from changes in current assets and liabilities, excluding the effects of divestitures: | | | | | | | | | Receivables | $ | 27.9 | | $ | 37.9 | | $ | (42.7) | Inventories | | (354.7) | | | 103.1 | | | 53.7 | Prepaid expenses and other current assets | | (42.7) | | | 94.2 | | | (114.3) | Accounts payable | | 343.1 | | | 392.5 | | | 162.4 | Other current liabilities | | (129.5) | | | 166.2 | | | (66.6) | Changes in current assets and liabilities | $ | (155.9) | | $ | 793.9 | | $ | (7.5) | See accompanying notes to consolidated financial statements. | | | | | | | | |
Notes to Consolidated Financial Statements GENERAL MILLS, INC. AND SUBSIDIARIES ITEM 8 Financial Statements and Supplementary Data
REPORTNOTE 1. BASIS OF MANAGEMENT RESPONSIBILITIESPRESENTATION AND RECLASSIFICATIONS
The management
Basis 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 Form10-K is consistent with our consolidated financial statements.Presentation 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 2020.
| | | | | /s/ J. L. Harmening | | /s/ D. L. Mulligan | | | | | | J. L. Harmening | | D. L. Mulligan | | | Chief Executive Officer | | Chief Financial Officer | | |
June 27, 2019
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
General Mills, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have auditedinclude the accompanying consolidated balance sheetsaccounts of General Mills, Inc. and all subsidiaries (the “Company”) as of May 26, 2019in which we have a controlling financial interest. Intercompany transactions and May 27, 2018, the related consolidated statements of earnings, comprehensive income, total equityaccounts, including any noncontrolling and redeemable interest,interests’ share of those transactions, are eliminated in consolidation.
Our fiscal year ends on the last Sunday in May. Fiscal years 2021 and cash flows2019 consisted of 52 weeks, while fiscal year 2020 consisted of 53 weeks.
Certain reclassifications to our previously reported financial information have been made to conform to the current period presentation. See Note 2 for eachadditional information.
Change in Reporting Period As part of a long-term plan to conform the fiscal yearsyear ends of all our operations, in fiscal 2020 we changed the three-yearreporting period endedof our Pet segment from an April fiscal year-end to a May 26, 2019,fiscal year-end to match our fiscal calendar. Accordingly, our fiscal 2020 results include 13 months of Pet segment results compared to 12 months in fiscal 2021 and the related notes and financial statement schedule (collectively, the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as2019. The impact of May 26, 2019, based on criteria established inInternal Control – Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Inthis change was not material to our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 26, 2019 and May 27, 2018, and the results of its operations and, its cash flows for each of the fiscal years in the three-yeartherefore, we did not restate prior period ended May 26, 2019, 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 26, 2019 based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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 Item 9a Management’s Reportcomparability. Our India business is 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.April fiscal year end.
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 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.
/s/ KPMG LLP
We have served as the Company’s auditor since 1928.
Minneapolis, Minnesota
June 27, 2019
Consolidated Statements of Earnings
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except per Share Data)
| | | | | | | | | | | | | | | Fiscal Year | | | | 2019 | | | 2018 | | | 2017 | | Net sales | | $ | 16,865.2 | | | $ | 15,740.4 | | | $ | 15,619.8 | | | | | | Cost of sales | | | 11,108.4 | | | | 10,304.8 | | | | 10,052.0 | | | | | | Selling, general, and administrative expenses | | | 2,935.8 | | | | 2,850.1 | | | | 2,888.8 | | | | | | Divestitures loss | | | 30.0 | | | | - | | | | 6.5 | | | | | | Restructuring, impairment, and other exit costs | | | 275.1 | | | | 165.6 | | | | 180.4 | | | | | | | | | | | | | | | | | | | Operating profit | | | 2,515.9 | | | | 2,419.9 | | | | 2,492.1 | | | | | | Benefit plannon-service income | | | (87.9) | | | | (89.4) | | | | (74.3) | | | | | | Interest, net | | | 521.8 | | | | 373.7 | | | | 295.1 | | | | | | | | | | | | | | | | | | | Earnings before income taxes andafter-tax earnings from joint ventures | | | 2,082.0 | | | | 2,135.6 | | | | 2,271.3 | | | | | | Income taxes | | | 367.8 | | | | 57.3 | | | | 655.2 | | | | | | After-tax earnings from joint ventures | | | 72.0 | | | | 84.7 | | | | 85.0 | | | | | | | | | | | | | | | | | | | Net earnings, including earnings attributable to redeemable and noncontrolling interests | | | 1,786.2 | | | | 2,163.0 | | | | 1,701.1 | | | | | | Net earnings attributable to redeemable and noncontrolling interests | | | 33.5 | | | | 32.0 | | | | 43.6 | | | | | | | | | | | | | | | | | | | Net earnings attributable to General Mills | | $ | 1,752.7 | | | $ | 2,131.0 | | | $ | 1,657.5 | | | | | | | | | | | | | | | | | | | Earnings per share - basic | | $ | 2.92 | | | $ | 3.69 | | | $ | 2.82 | | | | | | | | | | | | | | | | | | | Earnings per share - diluted | | $ | 2.90 | | | $ | 3.64 | | | $ | 2.77 | | | | | | | | | | | | | | | | | | | Dividends per share | | $ | 1.96 | | | $ | 1.96 | | | $ | 1.92 | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions)
| | | | | | | | | | | | | | | Fiscal Year | | | | 2019 | | | 2018 | | | 2017 | | Net earnings, including earnings attributable to redeemable and noncontrolling interests | | $ | 1,786.2 | | | $ | 2,163.0 | | | $ | 1,701.1 | | | | | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | | Foreign currency translation | | | (82.8) | | | | (37.0) | | | | 6.3 | | | | | | Net actuarial (loss) income | | | (253.4) | | | | 140.1 | | | | 197.9 | | | | | | Other fair value changes: | | | | | | | | | | | | | Securities | | | - | | | | 1.2 | | | | 0.8 | | Hedge derivatives | | | 12.1 | | | | (50.8) | | | | 53.3 | | | | | | Reclassification to earnings: | | | | | | | | | | | | | Securities | | | (2.0) | | | | (5.1) | | | | - | | Hedge derivatives | | | 0.9 | | | | 17.4 | | | | (25.7) | | Amortization of losses and prior service costs | | | 84.6 | | | | 117.6 | | | | 122.5 | | | | | | | | | | | | | | | Other comprehensive (loss) income, net of tax | | | (240.6) | | | | 183.4 | | | | 355.1 | | | | | | | | | | | | | | | | | | | Total comprehensive income | | | 1,545.6 | | | | 2,346.4 | | | | 2,056.2 | | | | | | Comprehensive (loss) income attributable to redeemable and noncontrolling interests | | | (10.7) | | | | 70.5 | | | | 31.0 | | | | | | | | | | | | | | | | | | | Comprehensive income attributable to General Mills | | $ | 1,556.3 | | | $ | 2,275.9 | | | $ | 2,025.2 | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except Par Value)
| | | | | | | | | | | May 26, 2019 | | | May 27, 2018 | | ASSETS | | | | | | | | | Current assets: | | | | | | | | | Cash and cash equivalents | | $ | 450.0 | | | $ | 399.0 | | Receivables | | | 1,679.7 | | | | 1,684.2 | | Inventories | | | 1,559.3 | | | | 1,642.2 | | Prepaid expenses and other current assets | | | 497.5 | | | | 398.3 | | | | | | | | | | | Total current assets | | | 4,186.5 | | | | 4,123.7 | | Land, buildings, and equipment | | | 3,787.2 | | | | 4,047.2 | | Goodwill | | | 13,995.8 | | | | 14,065.0 | | Other intangible assets | | | 7,166.8 | | | | 7,445.1 | | Other assets | | | 974.9 | | | | 943.0 | | | | | | | | | | | Total assets | | $ | 30,111.2 | | | $ | 30,624.0 | | | | | | | | | | | LIABILITIES AND EQUITY | | | | | | | | | Current liabilities: | | | | | | | | | Accounts payable | | $ | 2,854.1 | | | $ | 2,746.2 | | Current portion of long-term debt | | | 1,396.5 | | | | 1,600.1 | | Notes payable | | | 1,468.7 | | | | 1,549.8 | | Other current liabilities | | | 1,367.8 | | | | 1,445.8 | | | | | | | | | | | Total current liabilities | | | 7,087.1 | | | | 7,341.9 | | Long-term debt | | | 11,624.8 | | | | 12,668.7 | | Deferred income taxes | | | 2,031.0 | | | | 2,003.8 | | Other liabilities | | | 1,448.9 | | | | 1,341.0 | | | | | | | | | | | Total liabilities | | | 22,191.8 | | | | 23,355.4 | | | | | | | | | | | Redeemable interest | | | 551.7 | | | | 776.2 | | Stockholders’ equity: | | | | | | | | | Common stock, 754.6 shares issued, $0.10 par value | | | 75.5 | | | | 75.5 | | Additionalpaid-in capital | | | 1,386.7 | | | | 1,202.5 | | Retained earnings | | | 14,996.7 | | | | 14,459.6 | | Common stock in treasury, at cost, shares of 152.7 and 161.5 | | | (6,779.0) | | | | (7,167.5) | | Accumulated other comprehensive loss | | | (2,625.4) | | | | (2,429.0) | | | | | | | | | | | Total stockholders’ equity | | | 7,054.5 | | | | 6,141.1 | | Noncontrolling interests | | | 313.2 | | | | 351.3 | | | | | | | | | | | Total equity | | | 7,367.7 | | | | 6,492.4 | | | | | | | | | | | Total liabilities and equity | | $ | 30,111.2 | | | $ | 30,624.0 | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Consolidated Statements of Total Equity, and Redeemable Interest
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except per Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $.10 Par Value Common Stock (One Billion Shares Authorized) | | | | | | | | | | | | | | | | | | | Issued | | | Treasury | | | | | | | | | | | | | | | | | | | Shares | | | Par Amount | | | Additional Paid-In Capital | | | Shares | | | Amount | | | Retained Earnings | | | Accumulated Other Comprehensive Loss | | | Non- controlling Interests | | | Total Equity | | | Redeemable Interest | | Balance as of May 29, 2016 | | | 754.6 | | | $ | 75.5 | | | $ | 1,177.0 | | | | (157.8 | ) | | $ | (6,326.6 | ) | | $ | 12,616.5 | | | $ | (2,612.2 | ) | | $ | 376.9 | | | $ | 5,307.1 | | | $ | 845.6 | | Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 1,657.5 | | | | 367.7 | | | | 13.8 | | | | 2,039.0 | | | | 17.2 | | Cash dividends declared ($1.92 per share) | | | | | | | | | | | | | | | | | | | | | | | (1,135.1 | ) | | | | | | | | | | | (1,135.1 | ) | | | | | Shares purchased | | | | | | | | | | | | | | | (25.4 | ) | | | (1,651.5 | ) | | | | | | | | | | | | | | | (1,651.5 | ) | | | | | Stock compensation plans (includes income tax benefits of $64.1) | | | | | | | | | | | 3.6 | | | | 5.5 | | | | 215.2 | | | | | | | | | | | | | | | | 218.8 | | | | | | Unearned compensation related to stock unit awards | | | | | | | | | | | (78.5 | ) | | | | | | | | | | | | | | | | | | | | | | | (78.5 | ) | | | | | Earned compensation | | | | | | | | | | | 94.9 | | | | | | | | | | | | | | | | | | | | | | | | 94.9 | | | | | | Increase in redemption value of redeemable interest | | | | | | | | | | | (75.9 | ) | | | | | | | | | | | | | | | | | | | | | | | (75.9 | ) | | | 75.9 | | Acquisition of interest in subsidiary | | | | | | | | | | | (0.2 | ) | | | | | | | | | | | | | | | | | | | 0.1 | | | | (0.1 | ) | | | | | Distributions to redeemable and noncontrolling interest holders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (33.2 | ) | | | (33.2 | ) | | | (27.8) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of May 28, 2017 | | | 754.6 | | | | 75.5 | | | | 1,120.9 | | | | (177.7 | ) | | | (7,762.9 | ) | | | 13,138.9 | | | | (2,244.5 | ) | | | 357.6 | | | | 4,685.5 | | | | 910.9 | | Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 2,131.0 | | | | 144.9 | | | | 26.9 | | | | 2,302.8 | | | | 43.6 | | Cash dividends declared ($1.96 per share) | | | | | | | | | | | | | | | | | | | | | | | (1,139.7 | ) | | | | | | | | | | | (1,139.7 | ) | | | | | Shares purchased | | | | | | | | | | | | | | | (10.9 | ) | | | (601.6 | ) | | | | | | | | | | | | | | | (601.6 | ) | | | | | Shares issued | | | | | | | | | | | (39.1 | ) | | | 22.7 | | | | 1,009.0 | | | | | | | | | | | | | | | | 969.9 | | | | | | Stock compensation plans | | | | | | | | | | | (57.9 | ) | | | 4.4 | | | | 188.0 | | | | | | | | | | | | | | | | 130.1 | | | | | | Unearned compensation related to stock unit awards | | | | | | | | | | | (58.1 | ) | | | | | | | | | | | | | | | | | | | | | | | (58.1 | ) | | | | | Earned compensation | | | | | | | | | | | 77.0 | | | | | | | | | | | | | | | | | | | | | | | | 77.0 | | | | | | Decrease in redemption value of redeemable interest | | | | | | | | | | | 159.7 | | | | | | | | | | | | | | | | | | | | | | | | 159.7 | | | | (159.7) | | Distributions to redeemable and noncontrolling interest holders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (33.2 | ) | | | (33.2 | ) | | | (18.6) | | Reclassification of certain income tax effects | | | | | | | | | | | | | | | | | | | | | | | 329.4 | | | | (329.4 | ) | | | | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of May 27, 2018 | | | 754.6 | | | | 75.5 | | | | 1,202.5 | | | | (161.5 | ) | | | (7,167.5 | ) | | | 14,459.6 | | | | (2,429.0 | ) | | | 351.3 | | | | 6,492.4 | | | | 776.2 | | Total comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | 1,752.7 | | | | (196.4 | ) | | | 0.4 | | | | 1,556.7 | | | | (11.1) | | Cash dividends declared ($1.96 per share) | | | | | | | | | | | | | | | | | | | | | | | (1,181.7 | ) | | | | | | | | | | | (1,181.7 | ) | | | | | Shares purchased | | | | | | | | | | | | | | | - | | | | (1.1 | ) | | | | | | | | | | | | | | | (1.1 | ) | | | | | Stock compensation plans | | | | | | | | | | | (96.4 | ) | | | 8.8 | | | | 389.6 | | | | | | | | | | | | | | | | 293.2 | | | | | | Unearned compensation related to stock unit awards | | | | | | | | | | | (71.3 | ) | | | | | | | | | | | | | | | | | | | | | | | (71.3 | ) | | | | | Earned compensation | | | | | | | | | | | 82.8 | | | | | | | | | | | | | | | | | | | | | | | | 82.8 | | | | | | Increase in investment in redeemable interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | - | | | | 55.7 | | Decrease in redemption value of redeemable interest | | | | | | | | | | | 269.1 | | | | | | | | | | | | | | | | | | | | | | | | 269.1 | | | | (269.1) | | Distributions to redeemable and noncontrolling interest holders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (38.5 | ) | | | (38.5 | ) | | | | | Adoption of revenue recognition accounting requirements | | | | | | | | | | | | | | | | | | | | | | | (33.9 | ) | | | | | | | | | | | (33.9 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of May 26, 2019 | | | 754.6 | | | $ | 75.5 | | | $ | 1,386.7 | | | | (152.7 | ) | | $ | (6,779.0 | ) | | $ | 14,996.7 | | | $ | (2,625.4 | ) | | $ | 313.2 | | | $ | 7,367.7 | | | $ | 551.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions)
| | | | | | | | | | | | | | | Fiscal Year | | | | 2019 | | | 2018 | | | 2017 | | Cash Flows - Operating Activities | | | | | | | | | | | | | Net earnings, including earnings attributable to redeemable and noncontrolling interests | | $ | 1,786.2 | | | $ | 2,163.0 | | | $ | 1,701.1 | | Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 620.1 | | | | 618.8 | | | | 603.6 | | After-tax earnings from joint ventures | | | (72.0) | | | | (84.7) | | | | (85.0) | | Distributions of earnings from joint ventures | | | 86.7 | | | | 113.2 | | | | 75.6 | | Stock-based compensation | | | 84.9 | | | | 77.0 | | | | 95.7 | | Deferred income taxes | | | 93.5 | | | | (504.3) | | | | 183.9 | | Pension and other postretirement benefit plan contributions | | | (28.8) | | | | (31.8) | | | | (45.4) | | Pension and other postretirement benefit plan costs | | | 6.1 | | | | 4.6 | | | | 35.7 | | Divestitures loss | | | 30.0 | | | | - | | | | 13.5 | | Restructuring, impairment, and other exit costs | | | 235.7 | | | | 126.0 | | | | 117.0 | | Changes in current assets and liabilities, excluding the effects of acquisitions and divestitures | | | (7.5) | | | | 542.1 | | | | (194.2) | | Other, net | | | (27.9) | | | | (182.9) | | | | (86.3) | | | | | | | | | | | | | | | Net cash provided by operating activities | | | 2,807.0 | | | | 2,841.0 | | | | 2,415.2 | | | | | | | | | | | | | | | Cash Flows - Investing Activities | | | | | | | | | | | | | Purchases of land, buildings, and equipment | | | (537.6) | | | | (622.7) | | | | (684.4) | | Acquisition, net of cash acquired | | | - | | | | (8,035.8) | | | | - | | Investments in affiliates, net | | | 0.1 | | | | (17.3) | | | | 3.3 | | Proceeds from disposal of land, buildings, and equipment | | | 14.3 | | | | 1.4 | | | | 4.2 | | Proceeds from divestitures | | | 26.4 | | | | - | | | | 17.5 | | Exchangeable note | | | - | | | | - | | | | 13.0 | | Other, net | | | (59.7) | | | | (11.0) | | | | (0.5) | | | | | | | | | | | | | | | Net cash used by investing activities | | | (556.5) | | | | (8,685.4) | | | | (646.9) | | | | | | | | | | | | | | | Cash Flows - Financing Activities | | | | | | | | | | | | | Change in notes payable | | | (66.3) | | | | 327.5 | | | | 962.4 | | Issuance of long-term debt | | | 339.1 | | | | 6,550.0 | | | | 1,072.1 | | Payment of long-term debt | | | (1,493.8) | | | | (600.1) | | | | (1,000.0) | | Proceeds from common stock issued on exercised options | | | 241.4 | | | | 99.3 | | | | 112.6 | | Proceeds from common stock issued | | | - | | | | 969.9 | | | | - | | Purchases of common stock for treasury | | | (1.1) | | | | (601.6) | | | | (1,651.5) | | Dividends paid | | | (1,181.7) | | | | (1,139.7) | | | | (1,135.1) | | Investments in redeemable interest | | | 55.7 | | | | - | | | | - | | Distributions to noncontrolling and redeemable interest holders | | | (38.5) | | | | (51.8) | | | | (61.0) | | Other, net | | | (31.2) | | | | (108.0) | | | | (46.9) | | | | | | | | | | | | | | | Net cash provided (used) by financing activities | | | (2,176.4) | | | | 5,445.5 | | | | (1,747.4) | | | | | | | | | | | | | | | Effect of exchange rate changes on cash and cash equivalents | | | (23.1) | | | | 31.8 | | | | (18.5) | | | | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | 51.0 | | | | (367.1) | | | | 2.4 | | Cash and cash equivalents - beginning of year | | | 399.0 | | | | 766.1 | | | | 763.7 | | | | | | | | | | | | | | | Cash and cash equivalents - end of year | | $ | 450.0 | | | $ | 399.0 | | | $ | 766.1 | | | | | | | | | | | | | | | Cash Flow from Changes in Current Assets and Liabilities, excluding the effects of acquisitions and divestitures: | | | | | | | | | | | | | Receivables | | $ | (42.7) | | | $ | (122.7) | | | $ | (69.2) | | Inventories | | | 53.7 | | | | 15.6 | | | | (61.5) | | Prepaid expenses and other current assets | | | (114.3) | | | | (10.7) | | | | 16.6 | | Accounts payable | | | 162.4 | | | | 575.3 | | | | 99.5 | | Other current liabilities | | | (66.6) | | | | 84.6 | | | | (179.6) | | | | | | | | | | | | | | | Changes in current assets and liabilities | | $ | (7.5) | | | $ | 542.1 | | | $ | (194.2) | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
GENERAL MILLS, INC. AND SUBSIDIARIES
NOTE 1. BASIS OF PRESENTATION AND RECLASSIFICATIONS
Basis of Presentation
Our Consolidated Financial Statements include the accounts of General Mills, Inc. and all subsidiaries in which we have a controlling financial interest. Intercompany transactions and accounts, including any noncontrolling and redeemable interests’ share of those transactions, are eliminated in consolidation.
Our fiscal year ends on the last Sunday in May.
Certain reclassifications to our previously reported financial information have been made to conform to the current period presentation. See Note 2 for additional information.
Change in Reporting Period
As part of a long-term plan to conform the fiscal year ends of all our operations, in fiscal 2017 we changed the reporting period of General Mills Brasil Alimentos Ltda (Yoki) within our Asia & Latin America segment from an April fiscalyear-end to a May fiscalyear-end to match our fiscal calendar. Accordingly, in fiscal 2017, our results included 13 months of results from the affected operations. The impact of these changes was not material to our consolidated results of operations. Our General Mills India business and Pet operating segment are on an April fiscal year end.
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
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 26, 2019,30, 2021, assets held for sale were insignificant.
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. We perform our annual goodwill and indefinite-lived intangible assets impairment test as of the first day of the second quarter of the fiscal year. Impairment testing is performed for each of our reporting units. We compare the carrying value of a reporting unit, including goodwill, to the fair value of the unit. Carrying value is based on the assets and liabilities associated with the operations of that reporting unit, which often requires allocation of shared or corporate items among reporting units. If the carrying amount of a reporting unit exceeds its fair value, impairment has occurred. We recognize an
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 definitefinite lives are amortized on a straight-line basis, over their useful lives, generally ranging from 4 to 30 years.
Our indefinite-lived intangible assets, mainly intangible assets primarily associated with theBlue Buffalo, Pillsbury,Totino’s,Yoplait,Old El Paso,Progresso, Annie’s,Häagen-Dazs, and Yoki brands, 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 which included 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.
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 weighted-average cost of capital, or significant business disruptions. The significant assumptions used to estimate fair value include revenue growth and profitability, royalty rates, capital spending, depreciation and taxes, foreign currency exchange rates, and a discount rate. By their nature, these projections and assumptions are uncertain. If we were to determine the current fair value of our investment was less than the carrying value of the investment, then we would assess if the shortfall was of a temporary or permanent nature and write down the investment to its fair value if we concluded the impairment is other than temporary.
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. During the second and fourth quarters of fiscal 2019, we adjusted the redeemable interest’s redemption value based on a discounted cash flow model. The significant assumptions used to estimate the redemption value include projected revenue growth and profitability from our long-range plan, capital spending, depreciation, taxes, foreign currency exchange rates, and a discount rate.
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 revenue for the sale of packaged foods at the point in time when our performance obligation has been satisfied and control of the product has transferred to our customer, which generally occurs when the shipment is accepted by our customer. Sales include shipping and handling charges billed to the customer and are reported net of variable consideration and consideration payable to our customers, including trade promotion, consumer coupon redemption and other costs,reductions to the transaction price, including estimated allowances for returns, unsalable product, and prompt pay discounts. Sales, use, value-added, and other excise taxes are not included in revenue. Trade promotions are recorded using significant judgment of estimated participation and performance levels for offered programs at the time of sale. Differences between estimated expenses and actual costsreductions to the transaction price are recognized as a change in management estimate in a subsequent period. We generally do not allow a right of return. However, on a limitedcase-by-case basis with prior approval, we may allow customers to return product. In limited circumstances, product returned in saleable condition is resold to other customers or outlets. Receivables from customers generally do not bear interest. Payment terms and collection patterns are short-term, and vary around the world and by channel, and are short-term, and as such, we do not have any significant financing components. Our allowance for doubtful accounts represents our estimate of probablenon-payments andexpected credit losses inrelated to our existingtrade receivables. We pool our trade receivables as determined based on a review of past due balancessimilar risk characteristics, such as geographic location, business channel, and other specific account data. To estimate our allowance for doubtful accounts, we leverage information on historical losses, asset-specific risk characteristics, current conditions, and reasonable and supportable forecasts of future conditions. Account balances are written off against the allowance when we deem the amount is uncollectible. Please see Note 1617 for a disaggregation of our revenue into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. We do not have material contract assets or liabilities arising from our contracts with customers.
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
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. Any ineffectiveness is recognized in earnings in the current period.
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. Generally, stock-based compensation is recognized straight line over the vesting period. Our stock-based compensation expense is recorded in selling, general and administrative (SG&A) expenses and cost of sales in our Consolidated Statements of Earnings and allocated to each reportable segment in our segment results.
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. In fiscal 2018, we approved an amendment to reorganize the U.S. qualified defined benefit pension plans and the supplemental pension plans that resulted in the spinoff of a portion of the General Mills Pension Plan (the Plan) and the 2005 Supplemental Retirement Plan and the Supplemental Retirement Plan (Grandfathered) (together, the Supplemental Plans) into new plans effective May 31, 2018. The benefits offered to the plans’ participants were unchanged. The result of the reorganization was the creation of the General Mills Pension Plan I (Plan I) and the 2005 Supplemental Retirement Plan I and the Supplemental Retirement Plan I (Grandfathered) (together, the Supplemental Plans I). The reorganization was made to facilitate a targeted investment strategy over time and to provide additional flexibility in evaluating opportunities to reduce risk and volatility. Actuarial gains and losses associated with the Plan and the Supplemental Plans are amortized over the average remaining service period of the active participants. Actuarial gains and losses associated with the Plan I and the Supplemental Plans I are amortized over the average remaining life of the participants. Please refer to Note 13 for a description of our defined benefit pension, other postretirement benefit, and postemployment benefit plans.
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 promotional expenditures,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. Actual results could differ from our estimates.
New Accounting Standards In the first quarter of fiscal 2021, we adopted new accounting requirements related to the measurement of credit losses on financial instruments, including trade receivables. The new standard and subsequent amendments replace the incurred loss impairment model with a forward-looking expected credit loss model, which will generally result in earlier recognition of credit losses. Our allowance for doubtful accounts represents our estimate of expected credit losses related to our trade receivables. We pool our trade receivables based on similar risk characteristics, such as geographic location, business channel, and other account data. To estimate our allowance for doubtful accounts, we leverage information on historical losses, asset-specific risk characteristics, current conditions, and reasonable and supportable forecasts of future conditions. Account balances are written off against the allowance when we deem the amount is uncollectible. We adopted the requirements of the new standard and subsequent amendments using the modified retrospective transition approach, and recorded a decrease to retained earnings of $5.7 million after-tax.
In the fourth quarter of fiscal 2020, we adopted new accounting requirements related to the annual disclosure requirements for defined benefit pension and other postretirement benefit plans. The standard modifies specific disclosures to improve usefulness to financial statement users. We adopted the requirements of the new standard using a retrospective approach. The adoption of this guidance did not impact our results of operations or financial position.
In the first quarter of fiscal 2020, we adopted new accounting requirements for hedge accounting. The standard amends the hedge accounting recognition and presentation requirements to better align an entity’s risk management activities and financial reporting. The new standard also simplifies the application of hedge accounting guidance. The adoption did not have a material impact on our results of operations or financial position.
In the first quarter of fiscal 2020, we adopted new requirements for the accounting, presentation, and classification of leases. This results in certain leases being capitalized as a right of use asset with a related liability on our Consolidated Balance Sheet. We adopted this guidance utilizing the cumulative effect adjustment approach, which required application of the guidance at the adoption date, and elected certain practical expedients permitted under the transition guidance, including not reassessing whether existing contracts
contain leases and carrying forward the historical classification of those leases. In addition, we elected not to recognize leases with an initial term of 12 months or less on our Consolidated Balance Sheet and to continue our historical treatment of land easements, under permitted elections. This guidance did not have a material impact on retained earnings, our Consolidated Statements of Earnings, or our Consolidated Statements of Cash Flows.
In the first quarter of fiscal 2019, we adopted new accounting requirements related to the presentation of net periodic defined benefit pension expense, net periodic postretirement benefit expense, and net periodic postemployment benefit expense (collectively “net periodic benefit expense”). The new standard requires the service cost component of net periodic benefit expense to be recorded in the same line items as other employee compensation costs within our Consolidated Statements of Earnings. Other components of net periodic benefit expense must be presented separately outside of operating profit in our Consolidated Statements of Earnings. In addition, the new standard requires that only the service cost component of net periodic benefit expense is eligible for capitalization. The new standard requiresrequired retrospective adoption of the presentation of net periodic benefit expense and prospective application of the capitalization of the service cost component. The impact of the adoption of this standard on our results of operations was a decrease to our operating profit of $87.9 million $89.4 million and $74.3 million and a corresponding increase to benefit plannon-service income of $87.9 million $89.4 million and $74.3 million for fiscal 2019, fiscal 2018 and fiscal 2017, respectively.2019. There were no changes to our reported segment operating profit.
In the first quarter of fiscal 2019, we adopted new accounting requirements for the recognition of revenue from contracts with customers. Under the new standard, we apply a principles-based five step model to recognize revenue upon the transfer of control of promised goods to customers and in an amount that reflects the consideration for which we expect to be entitled to in exchange for those goods. The principles-based five step model includes: 1) identifying the contract(s) with a customer; 2) identifying the performance obligations in the contract; 3) determining the transaction price; 4) allocating the transaction price to the performance obligations in the contract; and 5) recognizing revenue when (or as) we satisfy a performance obligation. We utilized a comprehensive approach to evaluate and document the impact of the guidance on our current accounting policies and practices. We did not identify any material differences resulting from applying the new requirements to our revenue contracts. Additionally, we did not identify any significant changes to our business processes, systems, and controls to support recognition and disclosure requirements under the new guidance. We adopted the requirements of the new standard and subsequent amendments to all contracts in the first quarter of fiscal 2019 using the cumulative effect approach. We recorded a $33.9 million cumulative effect adjustment net of income tax effects to the opening balance of fiscal 2019 retained earnings, a decrease to deferred income taxes of $11.4 million, and an increase to other current liabilities of $45.3 million related to the timing of recognition of certain promotional expenditures. In
NOTE 3. Acquisition and DIVESTITURES
During the thirdfourth quarter of fiscal 2018,2021, we adopted new accounting requirements that codify Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 118, as it relates to allowing for recognitionrecorded a pre-tax loss of provisional amounts$53.5 million related to the U.S. Tax Cuts and Jobs Act (TCJA)sale of our Laticínios Carolina business in Brazil.
During the event that the accounting is not complete and a reasonable estimate can be made. Where necessary information is not available, prepared, or analyzed to determine a reasonable estimate, no provisional amount should be recorded. The guidance allows for a measurement period of up to one year from the enactment date to finalize the accounting related to the TCJA. In fiscal 2019, we completed our accounting for the tax effects of the TCJA. In the thirdfourth quarter of fiscal 2018,2021, we adopted new accounting requirements that provideentered into a definitive agreement to acquire Tyson Foods’ pet treats business for $1.2 billion in cash. We expect to close on the option to reclassify stranded income tax effects resulting from the TCJA from AOCI to retained earnings. We elected to reclassify the stranded income tax effects of the TCJA of $329.4 million from AOCI to retained earnings. This reclassification consisted of deferred taxes originally recordedacquisition in AOCI that exceeded the newly enacted federal corporate tax rate. The new accounting requirements allowed for adjustments to reclassification amounts in subsequent periods as a result of changes to the provisional amounts recorded.
In the first quarter of fiscal 2018, we adopted new requirements for2022. We intend to fund the accountingacquisition with cash and presentation of stock-based payments. The adoption of this guidance resulted in the prospective recognition of realized windfall and shortfall tax benefits related to the exercise or vesting of stock-based awards in our Consolidated Statements of Earnings instead ofadditional paid-in capital within our Consolidated Balance Sheets. We retrospectively adopted the guidance related to reclassification of realized windfall tax benefits, which resulted in reclassifications of cash provided by financing activities to operating activities in our Consolidated Statements of Cash Flows. Additionally, we retrospectively adopted the guidance related to reclassification of employee tax withholdings, which resulted in reclassifications of cash used by operating activities to financing activities in our Consolidated Statements of Cash Flows. Stock-based compensation expense continues to reflect estimated forfeitures.short-term debt.
In the first quarter of fiscal 2018, we adopted new accounting requirements which permit reporting entities to measure a goodwill impairment loss by the amount by which a reporting unit’s carrying value exceeds the reporting unit’s fair value. Previously, goodwill impairment losses were required to be measured by determining the implied fair value of goodwill. Our annual goodwill impairment test was performed as of the first day of the second quarter of fiscal 2018, and the adoption of this guidance did not impact our results of operations or financial position.
In the first quarter of fiscal 2017, we adopted new accounting requirements for the presentation of certain investments using the net asset value, providing a practical expedient to exclude such investments from categorization within the fair value hierarchy and separate disclosure. We adopted the guidance retrospectively and restated the fiscal 2016 fair value of plan asset tables in Note 13. The adoption of this guidance did not impact our results of operations or financial position.
In the first quarter of fiscal 2017, we adopted new accounting requirements which permit reporting entities with a fiscalyear-end that does not coincide with amonth-end to apply a practical expedient that permits the entity to measure defined benefit plan assets and obligations using themonth-end that is closest to the entity’s fiscalyear-end and apply such practical expedient consistently to all plans. The adoption of this guidance did not have a material impact on our results of operations or financial position.
NOTE 3. ACQUISITION AND DIVESTITURES
During the third quarter of fiscal 2019, we sold our La Salteña fresh pasta and refrigerated dough business in Argentina, and recorded apre-tax loss of $35.4 million. During the fourth quarter of fiscal 2019, we sold our yogurt business in China and simultaneously entered into a new Yoplait license agreement with the purchaser for their use of theYoplait brand. We recorded apre-tax gain of $5.4 million. During the fourth quarter of fiscal 2018, we acquired Blue Buffalo Pet Products, Inc. (“Blue Buffalo”) for an aggregate purchase price of $8.0 billion, including $103.0 million of consideration for net debt repaid at the time of the acquisition. In accordance with the definitive agreement and plan of merger, a subsidiary of General Mills merged into Blue Buffalo, with Blue Buffalo surviving the merger as a wholly owned subsidiary of General Mills. In accordance with the merger agreement, equity holders of Blue Buffalo received $40.00 per share in cash. We financed the transaction with a combination of $6.0 billion in debt, $1.0 billion in equity, and cash on hand. In fiscal 2019, we recorded acquisition integration costs of $25.6 million in SG&A expenses. In fiscal 2018, we recorded acquisition transaction and integration costs of $34.0 million in SG&A expenses and $49.9 million in interest, net related to the debt issued to finance the acquisition.
We consolidated Blue Buffalo into our Consolidated Balance Sheets and recorded goodwill of $5.3 billion, an indefinite-lived intangible asset for theBlue Buffalo brand of $2.7 billion, and a finite-lived customer relationship asset of $269.0 million. The goodwill was primarily attributable to future growth opportunities and any intangible assets that did not qualify for separate recognition. The goodwill is included in the Pet reporting unit and is not deductible for tax purposes. In the fourth quarter of fiscal 2019, we recorded adjustments to certain purchase accounting liabilities that resulted in a $5.6 million increase to goodwill.
The consolidated results of Blue Buffalo are reported as our Pet operating segment on aone-month lag.
The following unaudited supplemental pro forma information is presented as if we had acquired Blue Buffalo at the beginning of fiscal 2017:
| | | | | | | | | | | Unaudited | | | | Fiscal Year | | In Millions | | 2018 | | | 2017 | | Net sales | | $ | 17,057.4 | | | $ | 16,772.9 | | Net earnings attributable to General Mills | | | 2,252.4 | | | | 1,540.2 | |
The fiscal 2017 pro forma amounts include transaction and integration costs of $83.9 million and the purchase accounting adjustment to record inventory at fair value of $52.7 million. The fiscal 2017 and fiscal 2018 pro forma amounts include interest expense of $238.7 million on the debt issued to finance the transaction and amortization expense of $13.5 million based on the estimated fair value and useful life of the customer relationships intangible asset. Additionally, the pro forma amounts include an increase to cost of sales by $1.6 million in fiscal 2017 and $5.1 million in fiscal 2018 to reflect the impact of using the LIFO method of inventory valuation on Blue Buffalo’s historical operating results. Pro forma amounts include related tax effects of $125.1 million in fiscal 2017 and $14.5 million in fiscal 2018. Unaudited pro forma amounts are not necessarily indicative of results had the acquisition occurred at the beginning of fiscal 2017 or of future results.
NOTE 4. RESTRUCTURING, IMPAIRMENT, AND OTHER EXIT COSTS
ASSET IMPAIRMENTS
In fiscal 2019, we recorded a $192.6 million charge related to the impairment of ourProgresso, Food Should Taste Good,and Mountain Highbrand intangible assets in restructuring, impairment, and other exit costs. Please see Note 6 for additional information.
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. In fiscal 2018, we recorded a $96.9 million charge related to the impairment of ourYoki, Mountain High, andImmaculate Baking brand intangible assets in restructuring, impairment, and other exit costs.
RESTRUCTURING INITIATIVES
We view our restructuring activities as actions that help us meet our long-term growth targets. Activities we undertake must meettargets and are evaluated against internal rate of return and net present value targets. Each restructuring action normally takes one to two years to complete. At completion (or as each major stage is completed in the case of multi-year programs), the project begins to deliver cash savings and/or reduced depreciation. These activities result in various restructuring costs, including asset write-offs, exit charges including severance, contract termination fees, and decommissioning and other costs. Accelerated depreciation associated with restructured assets, as used in the context of our disclosures regarding restructuring activity, refers to the increase in depreciation expense caused by shortening the useful life or updating the salvage value of depreciable fixed assets to coincide with the end of production under an approved restructuring plan. Any impairment of the asset is recognized immediately in the period the plan is approved.
Charges recorded in fiscal 20192021 were as follows:
| Expense, in Millions | | | | | | Targeted actions in global supply chain | | $ | 80.2 | | | Global organizational structure and resource alignment | | $ | 157.3 | Asia & Latin America route-to-market and supply chain optimization | | | 13.0 | Charges associated with restructuring actions previously announced | | | (2.6) | | | 2.4 | Total | | $ | 77.6 | | $ | 172.7 |
In fiscal 2019,2021, we approved restructuring actions designed to better align our organizational structure and resources with strategic initiatives. We expect to incur approximately $170 million to $220 million of restructuring charges related to these global actions, of which approximately $130 million to $180 million will be cash. These charges are expected to consist primarily of severance and other benefits costs and other charges, including consulting and professional fees, contract termination costs, and fixed asset write-offs. We recognized $148.8 million of severance and other benefits costs and $8.5 million of other costs in fiscal 2021 related to these actions. We expect these actions to be completed by the end of fiscal 2023.
In fiscal 2021, we approved restructuring actions to leverage more efficient and effective route-to-market models and to optimize our supply chain in our Asia & Latin America segment. We expect to incur approximately $17 million of restructuring charges related to these actions, of which approximately $10 million will be cash. These charges are expected to consist of approximately $9 million of severance and $8 million of other costs, primarily asset write-offs. We recognized $8.8 million of severance and $4.2 million of other costs in fiscal 2021 related to these actions. We expect these actions to be completed by the end of the first quarter of fiscal 2022.
The charges associated with restructuring actions previously announced primarily relate to actions to drive efficiencies in targeted areas of our global supply chain. In our North America Retail segment, we approved actions at certain facilities to consolidate production and optimize our labor and manufacturing platforms. In connection withWe expect these actions we will exit our Carson, California yogurt manufacturing facility. We expect to incur approximately $101 millionbe completed by the end of restructuring charges related to these actions, including $10 million of severance expense and $91 million of other costs, primarily asset write-offs. We also expect to incur approximately $2 million of project-related costs. We recorded $9.9 million of severance and $44.5 million of other costs in fiscal 2019. In fiscal 2019, we approved targeted systems and process optimization actions in our Europe & Australia segment and expect to incur approximately $15 million of restructuring charges, including $11 million of severance expense and $4 million of other costs. We recorded $11.3 million of severance and $0.7 million of other costs in fiscal 2019. In fiscal 2019, we decided to exit underperforming product lines in our Asia & Latin America segment and expect to incur approximately $14 million of restructuring charges, including $1 million of severance expense and $13 million of other costs, primarily asset write-offs. We recorded $1.0 million of severance and $11.5 million of other costs in fiscal 2019. In fiscal 2019, we decided to exit underperforming markets in our Pet segment and expect to incur approximately $8 million of restructuring charges, including $2 million of severance expense and $6 million of other costs, primarily asset write-offs. We recorded $0.8 million of severance and $0.5 million of other costs in fiscal 2019.2023.
Certain of these global supply chain actions are subject to union negotiations and works counsel consultations, where required.
We expect to spend approximately $35paid net $21.8 million of cash related to theserestructuring actions in fiscal 2021. We paid net $6.6 million of cash in fiscal 2020.
In fiscal 2020, we did not undertake any new restructuring actions and spent $1.7recorded $50.2 million in fiscal 2019. We expect these actions to be completed by the end of fiscal 2022.restructuring charges for previously announced restructuring actions. In fiscal 2019, we paid $49.3 million in cash related to restructuring initiatives in fiscal 2019.
Charges recorded in fiscal 20182019 were as follows: Expense, in Millions | | | Targeted actions in global supply chain | $ | 80.2 | Charges associated with restructuring actions previously announced | | (2.6) | Total | $ | 77.6 |
| | | | | Expense, in Millions | | | | Global cost savings initiatives | | $ | 49.3 | | Charges associated with restructuring actions previously announced | | | 33.4 | | Total | | $ | 82.7 | |
Charges recorded in fiscal 2017 were as follows:
| | | | | Expense, in Millions | | | | Global reorganization | | $ | 72.1 | | Restructuring of certain international product lines | | | 45.1 | | Closure of Vineland, New Jersey plant | | | 41.4 | | Closure of Melbourne, Australia plant | | | 21.9 | | Charges associated with restructuring actions previously announced | | | 43.6 | | Total | | $ | 224.1 | |
Restructuring and impairment charges and project-related costs are classified in our Consolidated Statements of Earnings as follows: | Fiscal Year | In Millions | | 2021 | | 2020 | | 2019 | Restructuring, impairment, and other exit costs | $ | 170.4 | $ | 24.4 | $ | 275.1 | Cost of sales | | 2.3 | | 25.8 | | 9.9 | Total restructuring and impairment charges | | 172.7 | | 50.2 | | 285.0 | Project-related costs classified in cost of sales | $ | 0 | $ | 1.5 | $ | 1.3 |
| | | | | | | | | | | | | | | Fiscal | | In Millions | | 2019 | | | 2018 | | | 2017 | | Restructuring, impairment, and other exit costs | | $ | 275.1 | | | $ | 165.6 | | | $ | 180.4 | | Cost of sales | | | 9.9 | | | | 14.0 | | | | 41.5 | | Total restructuring charges | | | 285.0 | | | | 179.6 | | | | 221.9 | | Project-related costs classified in cost of sales | | $ | 1.3 | | | $ | 11.3 | | | $ | 43.9 | |
The roll forward of our restructuring and other exit cost reserves, included in other current liabilities, is as follows: In Millions | | Severance | | Contract Termination | | Other Exit Costs | | Total | Reserve balance as of May 27, 2018 | $ | 66.0 | $ | 0.1 | $ | 0.7 | $ | 66.8 | Fiscal 2019 charges, including foreign currency translation | | 7.7 | | 2.5 | | 1.4 | | 11.6 | Utilized in fiscal 2019 | | (37.2) | | (2.6) | | (2.1) | | (41.9) | Reserve balance as of May 26, 2019 | | 36.5 | | 0 | | 0 | | 36.5 | Fiscal 2020 charges, including foreign currency translation | | (5.0) | | 0.8 | | 1.7 | | (2.5) | Utilized in fiscal 2020 | | (13.7) | | (0.8) | | (1.7) | | (16.2) | Reserve balance as of May 31, 2020 | | 17.8 | | 0 | | 0 | | 17.8 | Fiscal 2021 charges, including foreign currency translation | | 142.3 | | 0.3 | | 1.3 | | 143.9 | Utilized in fiscal 2021 | | (12.8) | | (0.1) | | 0 | | (12.9) | Reserve balance as of May 30, 2021 | $ | 147.3 | $ | 0.2 | $ | 1.3 | $ | 148.8 |
| | | | | | | | | | | | | | | | | In Millions | | Severance | | | Contract Termination | | | Other Exit Costs | | | Total | | Reserve balance as of May 29, 2016 | | $ | 73.6 | | | $ | 1.5 | | | $ | 1.5 | | | $ | 76.6 | | Fiscal 2017 charges, including foreign currency translation | | | 95.0 | | | | 0.9 | | | | 8.1 | | | | 104.0 | | Utilized in fiscal 2017 | | | (86.8 | ) | | | (1.7 | ) | | | (7.1 | ) | | | (95.6 | ) | Reserve balance as of May 28, 2017 | | | 81.8 | | | | 0.7 | | | | 2.5 | | | | 85.0 | | Fiscal 2018 charges, including foreign currency translation | | | 40.8 | | | | 0.2 | | | | (0.7 | ) | | | 40.3 | | Utilized in fiscal 2018 | | | (56.6 | ) | | | (0.8 | ) | | | (1.1 | ) | | | (58.5 | ) | Reserve balance as of May 27, 2018 | | | 66.0 | | | | 0.1 | | | | 0.7 | | | | 66.8 | | Fiscal 2019 charges, including foreign currency translation | | | 7.7 | | | | 2.5 | | | | 1.4 | | | | 11.6 | | Utilized in fiscal 2019 | | | (37.2 | ) | | | (2.6 | ) | | | (2.1 | ) | | | (41.9 | ) | Reserve balance as of May 26, 2019 | | $ | 36.5 | | | $ | - | | | $ | - | | | $ | 36.5 | |
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 equity interest in Cereal Partners Worldwide (CPW), which manufactures and marketsready-to-eat cereal products in more than 130120 countries outside the United States and Canada. CPW also markets cereal bars in several European countries and manufactures private label cereals for customers in the United Kingdom. We have guaranteed a portion of CPW’s debt and its pension obligation in the United Kingdom.
We also have a 50 percent equity interest inHäagen-Dazs Japan, Inc. (HDJ). This joint venture manufactures and marketsHäHäagen-Dazsice cream products and frozen novelties.
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:
| In Millions | | May 26, 2019 | | | May 27, 2018 | | | May 30, 2021 | | May 31, 2020 | Cumulative investments | | $ | 452.9 | | | $ | 499.6 | | $ | 486.2 | $ | 481.4 | Goodwill and other intangibles | | | 472.1 | | | | 488.7 | | | 505.7 | | 460.5 | Aggregate advances included in cumulative investments | | | 249.0 | | | | 295.3 | | | 294.2 | | 279.5 |
Joint venture earnings and cash flow activity is as follows: | Fiscal Year | In Millions | | 2021 | | 2020 | | 2019 | Sales to joint ventures | $ | 6.7 | $ | 5.9 | $ | 4.2 | Net (repayments) advances | | (15.5) | | 48.0 | | (0.1) | Dividends received | | 95.2 | | 76.5 | | 86.7 |
| | | | | | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | 2017 | | Sales to joint ventures | | $ | 4.2 | | | $ | 7.4 | | | $ | 7.0 | | Net (repayments) advances | | | (0.1 | ) | | | 17.3 | | | | (3.3 | ) | Dividends received | | | 86.7 | | | | 113.2 | | | | 75.6 | |
Summary combined financial information for the joint ventures on a 100 percent basis is as follows: | Fiscal Year | In Millions | | 2021 | | 2020 | | 2019 | Net sales: | | | | | | | CPW | $ | 1,766.8 | $ | 1,654.3 | $ | 1,647.7 | HDJ | | 422.4 | | 391.3 | | 396.2 | Total net sales | | 2,189.2 | | 2,045.6 | | 2,043.9 | Gross margin | | 882.9 | | 785.3 | | 744.4 | Earnings before income taxes | | 247.8 | | 214.0 | | 155.4 | Earnings after income taxes | | 201.7 | | 176.5 | | 111.9 |
| | | | | | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | 2017 | | Net sales: | | | | | | | | | | | | | CPW | | $ | 1,647.7 | | | $ | 1,734.0 | | | $ | 1,648.4 | | HDJ | | | 396.2 | | | | 430.4 | | | | 435.1 | | Total net sales | | | 2,043.9 | | | | 2,164.4 | | | | 2,083.5 | | Gross margin | | | 744.4 | | | | 853.6 | | | | 865.9 | | Earnings before income taxes | | | 155.4 | | | | 216.2 | | | | 243.3 | | Earnings after income taxes | | | 111.9 | | | | 176.7 | | | | 190.3 | |
| | | | | | | | | In Millions | | May 26, 2019 | | | May 27, 2018 | | Current assets | | $ | 895.6 | | | $ | 938.5 | | Noncurrent assets | | | 839.2 | | | | 902.5 | | Current liabilities | | | 1,517.3 | | | | 1,579.3 | | Noncurrent liabilities | | | 77.1 | | | | 72.6 | |
In Millions | May 30, 2021 | May 31, 2020 | Current assets | $ | 877.4 | $ | 870.0 | Noncurrent assets | | 927.2 | | 781.4 | Current liabilities | | 1,424.4 | | 1,365.6 | Noncurrent liabilities | | 142.2 | | 104.2 |
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
The components of goodwill and other intangible assets are as follows:
| In Millions | | May 26, 2019 | | May 27, 2018 | | | May 30, 2021 | | May 31, 2020 | Goodwill | | $ | 13,995.8 | | | $ | 14,065.0 | | $ | 14,062.4 | $ | 13,923.2 | Other intangible assets: | | | | | | | | | Intangible assets not subject to amortization: | | | | | | | | | Brands and other indefinite-lived intangibles | | | 6,590.8 | | | 6,818.7 | | | 6,628.1 | | 6,561.4 | Intangible assets subject to amortization: | | | | | | | | | Franchise agreements, customer relationships, and other finite-lived intangibles | | | 786.1 | | | 811.7 | | | 823.4 | | 777.8 | Less accumulated amortization | | | (210.1 | ) | | (185.3 | ) | | (300.9) | | (243.4) | Intangible assets subject to amortization | | | 576.0 | | | 626.4 | | | 522.5 | | 534.4 | Other intangible assets | | | 7,166.8 | | | 7,445.1 | | | 7,150.6 | | 7,095.8 | Total | | $ | 21,162.6 | | | $ | 21,510.1 | | $ | 21,213.0 | $ | 21,019.0 |
Based on the carrying value of finite-lived intangible assets as of May 26, 2019,30, 2021, amortization expense for each of the next five fiscal years is estimated to be approximately $40 million. In fiscal 2018, we acquired Blue Buffalo, which became our Pet operating segment and we recorded $5.3 billion of goodwill, $2.7 billion related to an indefinite-lived brand intangible asset, and $269.0 million related to a customer relationships intangible asset. In the fourth quarter of fiscal 2019, we recorded adjustments to certain purchase accounting liabilities that resulted in a $5.6 million increase to goodwill.
The changes in the carrying amount of goodwill for fiscal 2017, 2018,2019, 2020, and 20192021 are as follows: In Millions | North America Retail | Pet | | Convenience Stores & Foodservice | | Europe & Australia | | Asia & Latin America | | Joint Ventures | | Total | Balance as of May 27, 2018 | $ | 6,410.6 | $ | 5,294.9 | | $ | 918.8 | | $ | 729.9 | | $ | 285.0 | | $ | 425.8 | | $ | 14,065.0 | Divestitures | | 0 | | 0 | | | 0 | | | 0 | | | (0.5) | | | 0 | | | (0.5) | Purchase accounting adjustment | | 0 | | 5.6 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5.6 | Other activity, primarily foreign currency translation | | (4.1) | | 0 | | | 0 | | | (29.5) | | | (24.3) | | | (16.4) | | | (74.3) | Balance as of May 26, 2019 | | 6,406.5 | | 5,300.5 | | | 918.8 | | | 700.4 | | | 260.2 | | | 409.4 | | | 13,995.8 | Other activity, primarily foreign currency translation | | (2.8) | | 0 | | | 0 | | | (9.7) | | | (56.4) | | | (3.7) | | | (72.6) | Balance as of May 31, 2020 | | 6,403.7 | | 5,300.5 | | | 918.8 | | | 690.7 | | | 203.8 | | | 405.7 | | | 13,923.2 | Divestiture | | 0 | | 0 | | | 0 | | | 0 | | | (1.2) | | | 0 | | | (1.2) | Other activity, primarily foreign currency translation | | 15.6 | | 0 | | | 0 | | | 74.8 | | | 10.1 | | | 39.9 | | | 140.4 | Balance as of May 30, 2021 | $ | 6,419.3 | $ | 5,300.5 | | $ | 918.8 | | $ | 765.5 | | $ | 212.7 | | $ | 445.6 | | $ | 14,062.4 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | In Millions | | North America Retail | | | Pet | | | Convenience Stores & Foodservice | | | Europe & Australia | | | Asia & Latin America | | | Joint Ventures | | | Total | | Balance as of May 29, 2016 | | $ | 6,410.3 | | | $ | - | | | $ | 921.1 | | | $ | 716.5 | | | $ | 287.1 | | | $ | 406.2 | | | $ | 8,741.2 | | Divestiture | | | - | | | | - | | | | (2.3 | ) | | | - | | | | - | | | | - | | | | (2.3 | ) | Other activity, primarily foreign currency translation | | | (3.8 | ) | | | - | | | | - | | | | (15.7 | ) | | | 25.3 | | | | 2.5 | | | | 8.3 | | Balance as of May 28, 2017 | | | 6,406.5 | | | | - | | | | 918.8 | | | | 700.8 | | | | 312.4 | | | | 408.7 | | | | 8,747.2 | | Acquisition | | | - | | | | 5,294.9 | | | | - | | | | - | | | | - | | | | - | | | | 5,294.9 | | Other activity, primarily foreign currency translation | | | 4.1 | | | | - | | | | - | | | | 29.1 | | | | (27.4 | ) | | | 17.1 | | | | 22.9 | | Balance as of May 27, 2018 | | | 6,410.6 | | | | 5,294.9 | | | | 918.8 | | | | 729.9 | | | | 285.0 | | | | 425.8 | | | | 14,065.0 | | Divestitures | | | - | | | | - | | | | - | | | | - | | | | (0.5 | ) | | | - | | | | (0.5 | ) | Purchase accounting adjustment | | | - | | | | 5.6 | | | | - | | | | - | | | | - | | | | - | | | | 5.6 | | Other activity, primarily foreign currency translation | | | (4.1 | ) | | | - | | | | - | | | | (29.5 | ) | | | (24.3 | ) | | | (16.4 | ) | | | (74.3 | ) | Balance as of May 26, 2019 | | $ | 6,406.5 | | | $ | 5,300.5 | | | $ | 918.8 | | | $ | 700.4 | | | $ | 260.2 | | | $ | 409.4 | | | $ | 13,995.8 | |
The changes in the carrying amount of other intangible assets for fiscal 2017, 2018,2019, 2020, and 20192021 are as follows: In Millions | | Total | Balance as of May 27, 2018 | $ | 7,445.1 | Impairment charge | | (192.6) | Other activity, primarily amortization and foreign currency translation | | (85.7) | Balance as of May 26, 2019 | | 7,166.8 | Other activity, primarily amortization and foreign currency translation | | (71.0) | Balance as of May 31, 2020 | | 7,095.8 | Divestiture | | (5.3) | Other activity, primarily amortization and foreign currency translation | | 60.1 | Balance as of May 30, 2021 | $ | 7,150.6 |
| | | | | In Millions | | Total | | Balance as of May 29, 2016
| | $ | 4,538.6 | | Other activity, primarily amortization and foreign currency translation
| | | (8.2 | ) | Balance as of May 28, 2017
| | | 4,530.4 | | Acquisition
| | | 3,015.0 | | Impairment charge
| | | (96.9 | ) | Other activity, primarily amortization and foreign currency translation
| | | (3.4 | ) | Balance as of May 27, 2018
| | | 7,445.1 | | Impairment charges
| | | (192.6 | ) | Other activity, primarily amortization and foreign currency translation
| | | (85.7 | ) | Balance as of May 26, 2019
| | $ | 7,166.8 | |
Our annual goodwill and indefinite-lived intangible assets impairment test was performed on the first day of the second quarter of fiscal 2019. As2021, 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.
We did not identify any indicators of impairment for any goodwill or indefinite-lived intangible assets as of May 30, 2021.
In fiscal 2019, as a result of lower sales projections in our long-range plans for the businesses supporting theProgresso,Food Should Taste Good,andMountain Highbrand intangible assets, we recorded the following impairment charges: | | | | | | | | | In Millions | | Impairment Charge | | | Fair Value as of Nov. 25, 2018 (a) | | Progresso | | $ | 132.1 | | | $ | 330.0 | | Food Should Taste Good | | | 45.1 | | | | - | | Mountain High | | | 15.4 | | | | - | | Total | | $ | 192.6 | | | $ | 330.0 | | (a) Level 3 assets in the fair value hierarchy. | | | | | |
In fiscal 2018, we recorded a $96.9$192.6 million charge related to the impairment of ourYoki, Mountain High, andImmaculate Baking brand intangible assetscharge in restructuring, impairment, and other exit costs.
Significant assumptions used in that assessmentthese assessments included our long-range cash flow projections for the businesses, royalty rates, weighted-average cost of capital rates, and tax rates.rates.
NOTE 7. LEASES
Our Latin America reporting unitlease portfolio primarily consists of operating lease arrangements for certain warehouse and theYokibrand intangible asset had fair values that weredistribution 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 substantiallymaterial to our Consolidated Financial Statements.
Components of our lease cost are as follows:
| Fiscal Year | In Millions | | 2021 | | 2020 | Operating lease cost | $ | 132.7 | $ | 133.5 | Variable lease cost | | 21.8 | | 14.4 | Short-term lease cost | | 15.4 | | 23.3 |
Rent expense under all operating leases from continuing operations was $184.9 million in excessfiscal 2019.
Maturities of our operating and finance lease obligations by fiscal year are as follows: In Millions | | Operating Leases | | Finance Leases | Fiscal 2022 | $ | 123.3 | $ | 0.7 | Fiscal 2023 | | 103.5 | | 0.7 | Fiscal 2024 | | 80.9 | | 0.4 | Fiscal 2025 | | 50.2 | | 0 | Fiscal 2026 | | 32.6 | | 0 | After fiscal 2026 | | 36.7 | | 0 | Total noncancelable future lease obligations | $ | 427.2 | $ | 1.8 | Less: Interest | | (32.8) | | 0 | Present value of lease obligations | $ | 394.4 | $ | 1.8 |
The lease payments presented in the carrying values. The excess fair valuetable above exclude $87.8 million of minimum lease payments for operating leases we have committed to but have not yet commenced as of the fiscal 2019 test date of the Latin America reporting unitMay 30, 2021.
The weighted-average remaining lease term and theYoki brand intangible asset wereweighted-average discount rate for our operating leases are as follows: | May 30, 2021 | May 31, 2020 | Weighted-average remaining lease term | 4.5 | years | 4.6 | years | Weighted-average discount rate | 3.7 | % | 4.1 | % |
| | | | | | | | | In Millions | | Carrying Value of Intangible Asset | | | Excess Fair Value as of Fiscal 2019 Test Date | | Latin America | | $ | 209.0 | | | | 7% | | Yoki | | $ | 49.1 | | | | 10% | |
While having significant coverageSupplemental operating cash flow information and non-cash activity related to our operating leases are as of our fiscal 2019 assessment date, thePillsbury brand intangible asset and U.S. Yogurt reporting unit had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.
follows: | Fiscal Year | In Millions | | 2021 | | 2020 | Cash paid for amounts included in the measurement of lease liabilities | $ | 132.0 | $ | 131.0 | Right of use assets obtained in exchange for new lease liabilities | $ | 120.2 | $ | 46.3 |
NOTE 7.8. FINANCIAL INSTRUMENTS, RISK MANAGEMENT ACTIVITIES, AND FAIR VALUES
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 26, 201930, 2021, and May 27, 2018,31, 2020, a comparison of cost and market values of our marketable debt and equity securities is as follows:
| | | Cost | | Fair Value | | Gross Gains | | Gross Losses | | Cost | | Fair Value | | Gross Gains | | Gross Losses | | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | In Millions | | 2019 | | 2018 | | | | 2019 | | 2018 | | | | 2019 | | 2018 | | | | 2019 | | 2018 | | | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | Available for sale debt securities | | $ | 34.3 | | | $ | 25.4 | | | | | $ | 34.3 | | | $ | 25.4 | | | | | $ | - | | | $ | - | | | | | $ | - | | | $ | - | | $ | 76.9 | $ | 56.7 | | $ | 76.9 | $ | 56.7 | | $ | 0 | $ | 0 | | $ | 0 | $ | 0 | Equity securities | | | 0.6 | | | 0.3 | | | | 18.5 | | | 3.5 | | | | 17.9 | | | 3.2 | | | | - | | | | - | | | 360.3 | | 0.3 | | | 365.6 | | 4.9 | | | 5.3 | | 4.6 | | | 0 | | 0 | Total | | $ | 34.9 | | | $ | 25.7 | | | $ | 52.8 | | | $ | 28.9 | | | $ | 17.9 | | | $ | 3.2 | | | $ | - | | | $ | - | | $ | 437.2 | $ | 57.0 | | $ | 442.5 | $ | 61.6 | | $ | 5.3 | $ | 4.6 | | $ | 0 | $ | 0 |
There were no0 realized gains or losses from sales of marketable securities in fiscal 2019. In2021. During fiscal 2018,2020, we realized $6.8received $16.0 million of gainsproceeds and recorded $4.0 million of realized losses from the sale ofavailable-for-sale marketable securities. Gains and losses are determined by specific identification. Classification of marketable securities as current or noncurrent is dependent upon our intended holding period and the security’s maturity date. The aggregate unrealized gains and losses onavailable-for-sale debt securities, net of tax effects, are classified in AOCI within stockholders’ equity.
Scheduled maturities of our marketable securities are as follows: | | Marketable Securities | In Millions | | Cost | | Fair Value | Under 1 year (current) | $ | 76.9 | $ | 76.9 | Equity securities | | 360.3 | | 365.6 | Total | $ | 437.2 | $ | 442.5 |
| | | | | | | | | | | Marketable Securities | | In Millions | | Cost | | | Fair Value | | Under 1 year (current) | | $ | 34.3 | | | $ | 34.3 | | Equity securities | | | 0.6 | | | | 18.5 | | Total | | $ | 34.9 | | | $ | 52.8 | |
As of May 26, 2019,30, 2021, $360.0 million of equity securities were restricted for payment of active employee health and welfare benefits. As of May 30, 2021, we had $2.3$2.4 million of certain marketable debt securities pledged as collateral for derivative contracts. As of May 26, 2019, $34.830, 2021, $28.2 million of certain accounts receivable were pledged as collateral against a foreign uncommitted line of credit.
The fair value and carrying amounts of long-term debt, including the current portion, were $13,272.8$13,194.4 million and $13,021.3$12,250.7 million, respectively, as of May 26, 2019.30, 2021. The fair value of long-term debt was estimated using market quotations and discounted cash flows based on our current incremental borrowing rates for similar types of instruments. Long-term debt is a Level 2 liability in the fair value hierarchy.
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 cost as possible.cost.
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.
Unallocated corporate items for fiscal 2021, 2020, and 2019 2018 and 2017 included: | Fiscal Year | In Millions | | 2021 | | | 2020 | | | 2019 | Net gain (loss) on mark-to-market valuation of commodity positions | $ | 138.2 | | $ | (63.0) | | $ | (39.0) | Net (gain) loss on commodity positions reclassified from unallocated corporate items to segment operating profit | | (8.8) | | | 35.6 | | | 10.0 | Net mark-to-market revaluation of certain grain inventories | | 9.4 | | | 2.7 | | | (7.0) | Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items | $ | 138.8 | | $ | (24.7) | | $ | (36.0) |
| | | | | | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | 2017 | | Net gain (loss) onmark-to-market valuation of commodity positions | | $ | (39.0 | ) | | $ | 14.3 | | | $ | (22.0 | ) | Net loss on commodity positions reclassified from unallocated corporate items to segment operating profit | | | 10.0 | | | | 11.3 | | | | 32.0 | | Netmark-to-market revaluation of certain grain inventories | | | (7.0 | ) | | | 6.5 | | | | 3.9 | | Netmark-to-market valuation of certain commodity positions recognized in unallocated corporate items | | $ | (36.0 | ) | | $ | 32.1 | | | $ | 13.9 | |
As of May 26, 2019,30, 2021, the net notional value of commodity derivatives was $312.5$337.0 million, of which $242.9$276.1 million related to agricultural inputs and $69.6$60.9 million related to energy inputs. These contracts relate to inputs that generally will be utilized within the next 12 months.
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. Ineffective gains and losses are recorded as net interest. The amount of hedge ineffectiveness was less than $1 million in fiscal 2019, a $2.6 million loss in fiscal 2018, and less than $1 million in fiscal 2017.
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. Ineffective gains and losses on these derivatives and the underlying hedged items are recorded as net interest. The amount of hedge ineffectiveness was a $2.4 million gain in fiscal 2019, a $3.4 million loss in fiscal 2018, and a $4.3 million gain in fiscal 2017.
In advance of planned debt financing, related to the acquisition of Blue Buffalo, we entered into $3,800.0$750.0 million notional amount of treasury locks due April 19, 2018,2, 2020 with an average fixed rate of 2.90.67 percent. All of these treasury locks were cash settled for $43.9$1.4 million during the fourth quarter of fiscal 2018,2020, concurrent with the issuance of our $850.0$750.0 million5.5-year fixed-rate notes, $800.0 million7-year fixed-rate notes, $1,400.0 million10-year fixed-rate notes, $500.0 million20-year fixed-rate notes, and $650.0 million30-year fixed-rate fixed rate notes.
In advance of planned debt financing, in the fourth quarter of fiscal 2018,2020, we entered into $500.0$300.0 million notional amount of treasury locks due October 15, 2017January 13, 2022 with an average fixed rate of 1.80.85 percent. All
During the third quarter of these treasury locks were cash settled for $3.7fiscal 2020, we entered into a €600.0 million duringnotional amount interest rate swap to convert our €600.0 million fixed rate notes due January 15, 2026, to a floating rate.
During the second quarter of fiscal 2018, concurrent with the issuance2020, we entered into a $500.0 million notional amount interest rate swap to convert a portion of our $500.0$850.0 million5-year fixed-rate notes. floating-rate notes due April 16, 2021, to a fixed rate.
As of May 26, 2019,30, 2021, thepre-tax amount of cash-settled interest rate hedge gain or loss remaining in AOCI, which will be reclassified to earnings over the remaining term of the related underlying debt, follows: In Millions |
| Gain/(Loss) | 3.15% notes due December 15, 2021 | $ | (5.3) | 2.6% notes due October 12, 2022 |
| 1.0 | 1.0% notes due April 27, 2023 |
| (0.5) | 3.7% notes due October 17, 2023 |
| (0.8) | 3.65% notes due February 15, 2024 |
| 4.9 | 4.0% notes due April 17, 2025 |
| (2.3) | 3.2% notes due February 10, 2027 |
| 9.7 | 1.5% notes due April 27, 2027 |
| (1.9) | 4.2% notes due April 17, 2028 |
| (7.0) | 4.55% notes due April 17, 2038 |
| (9.2) | 5.4% notes due June 15, 2040 |
| (10.6) | 4.15% notes due February 15, 2043 |
| 8.5 | 4.7% notes due April 17, 2048 |
| (12.8) | Net pre-tax hedge loss in AOCI | $ | (26.3) |
| | | | | In Millions | | Gain/(Loss) | | 3.15% notes due December 15, 2021 | | $ | (25.3 | ) | 2.6% notes due October 12, 2022 | | | 2.5 | | 1.0% notes due April 27, 2023 | | | (0.9 | ) | 3.7% notes due October 17, 2023 | | | (1.5 | ) | 3.65% notes due February 15, 2024 | | | 8.4 | | 4.0% notes due April 17, 2025 | | | (3.4 | ) | 3.2% notes due February 10, 2027 | | | 13.2 | | 1.5% notes due April 27, 2027 | | | (2.6 | ) | 4.2% notes due April 17, 2028 | | | (9.1 | ) | 4.55% notes due April 17, 2038 | | | (10.3 | ) | 5.4% notes due June 15, 2040 | | | (11.8 | ) | 4.15% notes due February 15, 2043 | | | 9.3 | | 4.7% notes due April 17, 2048 | | | (13.7 | ) | Netpre-tax hedge loss in AOCI | | $ | (45.2 | ) |
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. In Millions | | May 30, 2021 | | | | May 31, 2020 | | Pay-floating swaps - notional amount | $ | 731.5 | | | $ | 666.1 | | Average receive rate | | 0.4 | % | | | 0.4 | % | Average pay rate | | 0.1 | % | | | 0.3 | % | Pay-fixed swaps - notional amount | $ | 0 | | | $ | 500.0 | | Average receive rate | | 0 | % | | | 1.7 | % | Average pay rate | | 0 | % | | | 2.1 | % |
| | | | | | | | | In Millions | | May 26, 2019 | | | May 27, 2018 | | Pay-floating swaps - notional amount | | $ | 500.0 | | | $ | 500.0 | | Average receive rate | | | 2.2% | | | | 2.2% | | Average pay rate | | | 3.1% | | | | 2.9% | |
The floating rate swap contracts outstanding as of May 26, 201930, 2021, mature in fiscal 2020.2026.
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 26, 2019,30, 2021, the net notional value of foreign exchange derivatives was $1,008.5$1,176.8 million. The amount of hedge ineffectiveness was less than $1 million in fiscal 2019, 2018, and 2017.
We also have net investments in foreign subsidiaries that are denominated in euros. We previously hedged a portion of these net investments by issuing euro-denominated commercial paper and foreign exchange forward contracts. As of May 26, 2019,30, 2021, we hedged a portion of these net investments with €2,200.0€2,510.4 million of euro denominated bonds. As of May 26, 2019,30, 2021, we had deferred net foreign currency transaction losses of $51.5$216.6 million in AOCI associated with net investment hedging activity.
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 26, 2019,30, 2021, the net notional amount of our equity swaps was $169.1 million. These$201.1 million of which $191.2 million of swap contracts mature in fiscal 2020.2022 and $9.9 million of swap contracts mature in fiscal 2023.
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 26, 201930, 2021, and May 27, 2018,31, 2020, were as follows: | May 30, 2021 | | May 30, 2021 | | Fair Values of Assets | | Fair Values of Liabilities | In Millions | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total | Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | Interest rate contracts (a) (b) | $ | 0 | $ | 28.8 | $ | 0 | $ | 28.8 | | $ | 0 | $ | 0 | $ | 0 | $ | 0 | Foreign exchange contracts (a) (c) | | 0 | | 2.3 | | 0 | | 2.3 | | | 0 | | (36.3) | | 0 | | (36.3) | Total | | 0 | | 31.1 | | 0 | | 31.1 | | | 0 | | (36.3) | | 0 | | (36.3) | | | | | | | | | | | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | Foreign exchange contracts (a) (c) | | 0 | | 2.5 | | 0 | | 2.5 | | | 0 | | (1.6) | | 0 | | (1.6) | Commodity contracts (a) (d) | | 11.1 | | 20.5 | | 0 | | 31.6 | | | (0.8) | | (0.5) | | 0 | | (1.3) | Grain contracts (a) (d) | | 0 | | 12.0 | | 0 | | 12.0 | | | 0 | | (0.9) | | 0 | | (0.9) | Total | | 11.1 | | 35.0 | | 0 | | 46.1 | | | (0.8) | | (3.0) | | 0 | | (3.8) | | | | | | | | | | | | | | | | | | | Other assets and liabilities reported at fair value: | | | | | | | | | | | | | | | | | | Marketable investments (a) (e) | | 365.6 | | 76.9 | | 0 | | 442.5 | | | 0 | | 0 | | 0 | | 0 | Total | | 365.6 | | 76.9 | | 0 | | 442.5 | | | 0 | | 0 | | 0 | | 0 | Total assets, liabilities, and derivative positions recorded at fair value | $ | 376.7 | $ | 143.0 | $ | 0 | $ | 519.7 | | $ | (0.8) | $ | (39.3) | $ | 0 | $ | (40.1) |
(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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | May 26, 2019 | | | May 26, 2019 | | | | Fair Values of Assets | | | Fair Values of Liabilities | | In Millions | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate contracts (a) (b) | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | (1.9) | | | $ | - | | | $ | (1.9) | | Foreign exchange contracts (c) (d) | | | - | | | | 12.9 | | | | - | | | | 12.9 | | | | - | | | | (3.3) | | | | - | | | | (3.3) | | Total | | | - | | | | 12.9 | | | | - | | | | 12.9 | | | | - | | | | (5.2) | | | | - | | | | (5.2) | | Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign exchange contracts (c) (d) | | | - | | | | 2.4 | | | | - | | | | 2.4 | | | | - | | | | (1.9) | | | | - | | | | (1.9) | | Commodity contracts (c) (e) | | | 1.4 | | | | 5.2 | | | | - | | | | 6.6 | | | | (4.4) | | | | (3.5) | | | | - | | | | (7.9) | | Grain contracts (c) (e) | | | - | | | | 6.7 | | | | - | | | | 6.7 | | | | - | | | | (2.3) | | | | - | | | | (2.3) | | Total | | | 1.4 | | | | 14.3 | | | | - | | | | 15.7 | | | | (4.4) | | | | (7.7) | | | | - | | | | (12.1) | | Other assets and liabilities reported at fair value: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Marketable investments (a) (f) | | | 18.5 | | | | 34.3 | | | | - | | | | 52.8 | | | | - | | | | - | | | | - | | | | - | | Long-lived assets (g) | | | - | | | | 19.0 | | | | - | | | | 19.0 | | | | - | | | | - | | | | - | | | | - | | Indefinite-lived intangible assets (h) | | | - | | | | - | | | | 330.0 | | | | 330.0 | | | | - | | | | - | | | | - | | | | - | | Total | | | 18.5 | | | | 53.3 | | | | 330.0 | | | | 401.8 | | | | - | | | | - | | | | - | | | | - | | Total assets, liabilities, and derivative positions recorded at fair value | | $ | 19.9 | | | $ | 80.5 | | | $ | 330.0 | | | $ | 430.4 | | | $ | (4.4) | | | $ | (12.9) | | | $ | - | | | $ | (17.3) | |
(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.
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(b) | Based on LIBOR and swap rates.
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(c) | These contracts 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.
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(d) | Based on observable market transactions of spot currency rates and forward currency prices.
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(e) | Based on prices of futures exchanges and recently reported transactions in the marketplace.
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(f) | Based on prices of common stock and bond matrix pricing.
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(g) | We recorded $61.2 million innon-cash impairment charges in fiscal 2019 to write down certain long-lived assets to their fair value. Fair value was based on recently reported transactions for similar assets in the marketplace. These assets had a carrying value of $80.2 million and were associated with the restructuring actions described in Note 4.
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(b)Based on LIBOR and swap rates. As of May 30, 2021, the carrying amount of hedged debt designated as the hedged item in a fair value hedge was $736.9 million and was classified on the Consolidated Balance Sheet within long-term debt. As of May 30, 2021, the cumulative amount of fair value hedging basis adjustments was $5.4 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, mutual fund net asset values, and bond matrix pricing.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | May 27, 2018 | | | May 27, 2018 | | | | Fair Values of Assets | | | Fair Values of Liabilities | | In Millions | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate contracts (a) (b) | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | (6.6) | | | $ | - | | | $ | (6.6) | | Foreign exchange contracts (c) (d) | | | - | | | | 9.4 | | | | - | | | | 9.4 | | | | - | | | | (6.4) | | | | - | | | | (6.4) | | Total | | | - | | | | 9.4 | | | | - | | | | 9.4 | | | | - | | | | (13.0) | | | | - | | | | (13.0) | | Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign exchange contracts (c) (d) | | | - | | | | 2.5 | | | | - | | | | 2.5 | | | | - | | | | (0.8) | | | | - | | | | (0.8) | | Commodity contracts (c) (e) | | | 14.7 | | | | 13.0 | | | | - | | | | 27.7 | | | | (0.5) | | | | (0.6) | | | | - | | | | (1.1) | | Grain contracts (c) (e) | | | - | | | | 7.1 | | | | - | | | | 7.1 | | | | - | | | | (1.2) | | | | - | | | | (1.2) | | Total | | | 14.7 | | | | 22.6 | | | | - | | | | 37.3 | | | | (0.5) | | | | (2.6) | | | | - | | | | (3.1) | | Other assets and liabilities reported at fair value: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Marketable investments (a) (f) | | | 3.5 | | | | 25.4 | | | | - | | | | 28.9 | | | | - | | | | - | | | | - | | | | - | | Long-lived assets (g) | | | - | | | | 10.0 | | | | - | | | | 10.0 | | | | - | | | | - | | | | - | | | | - | | Indefinite-lived intangible assets (h) | | | - | | | | - | | | | 79.0 | | | | 79.0 | | | | - | | | | - | | | | - | | | | - | | Total | | | 3.5 | | | | 35.4 | | | | 79.0 | | | | 117.9 | | | | - | | | | - | | | | - | | | | - | | Total assets, liabilities, and derivative positions recorded at fair value | | $ | 18.2 | | | $ | 67.4 | | | $ | 79.0 | | | $ | 164.6 | | | $ | (0.5) | | | $ | (15.6) | | | $ | - | | | $ | (16.1) | |
(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.
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(b) | Based on LIBOR and swap rates.
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(c) | These contracts 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.
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(d) | Based on observable market transactions of spot currency rates and forward currency prices.
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(e) | Based on prices of futures exchanges and recently reported transactions in the marketplace.
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(f) | Based on prices of common stock and bond matrix pricing.
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(g) | We recorded $9.0 million innon-cash impairment charges in fiscal 2018 to write down certain long-lived assets to their fair value. Fair value was based on recently reported transactions for similar assets in the marketplace. These assets had a carrying value of $19.0 million and were associated with the restructuring actions described in Note 4.
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| May 31, 2020 | | May 31, 2020 | | Fair Values of Assets | | Fair Values of Liabilities | In Millions | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total | Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | Interest rate contracts (a) (b) | $ | 0 | $ | 5.6 | $ | 0 | $ | 5.6 | | $ | 0 | $ | (7.8) | $ | 0 | $ | (7.8) | Foreign exchange contracts (a) (c) | | 0 | | 19.8 | | 0 | | 19.8 | | | 0 | | (3.8) | | 0 | | (3.8) | Total | | 0 | | 25.4 | | 0 | | 25.4 | | | 0 | | (11.6) | | 0 | | (11.6) | Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | Foreign exchange contracts (a) (c) | | 0 | | 18.8 | | 0 | | 18.8 | | | 0 | | (0.2) | | 0 | | (0.2) | Commodity contracts (a) (d) | | 4.6 | | 1.6 | | 0 | | 6.2 | | | (3.4) | | (26.7) | | 0 | | (30.1) | Grain contracts (a) (d) | | 0 | | 5.0 | | 0 | | 5.0 | | | 0 | | (1.2) | | 0 | | (1.2) | Total | | 4.6 | | 25.4 | | 0 | | 30.0 | | | (3.4) | | (28.1) | | 0 | | (31.5) | Other assets and liabilities reported at fair value: | | | | | | | | | | | | | | | | | | Marketable investments (a) (e) | | 4.9 | | 56.7 | | 0 | | 61.6 | | | 0 | | 0 | | 0 | | 0 | Total | | 4.9 | | 56.7 | | 0 | | 61.6 | | | 0 | | 0 | | 0 | | 0 | Total assets, liabilities, and derivative positions recorded at fair value | $ | 9.5 | $ | 107.5 | $ | 0 | $ | 117.0 | | $ | (3.4) | $ | (39.7) | $ | 0 | $ | (43.1) |
(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.
Information related to our cash flow hedges, fair value hedges, and other derivatives not designated as hedging instruments for the fiscal years ended May 26, 201930, 2021, and May 27, 2018,31, 2020, follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest Rate Contracts | | | Foreign Exchange Contracts | | | Equity Contracts | | | Commodity Contracts | | | Total | | | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Derivatives in Cash Flow Hedging Relationships: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amount of gain (loss) recognized in other comprehensive income (OCI) (a) | | $ | - | | | $ | (50.5) | | | $ | 15.7 | | | $ | (14.6) | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 15.7 | | | $ | (65.1) | | Amount of net gain (loss) reclassified from AOCI into earnings (a) (b) | | | (9.0) | | | | 19.3 | | | | 8.4 | | | | (4.2) | | | | - | | | | - | | | | - | | | | - | | | | (0.6) | | | | 15.1 | | Amount of net gain (loss) recognized in earnings (c) | | | - | | | | (2.6) | | | | 0.5 | | | | (0.3) | | | | - | | | | - | | | | - | | | | - | | | | 0.5 | | | | (2.9) | | Derivatives in Fair Value Hedging Relationships: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amount of net gain (loss) recognized in earnings (d) | | | 2.4 | | | | (3.4) | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2.4 | | | | (3.4) | | Derivatives Not Designated as Hedging Instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amount of net gain (loss) recognized in earnings (d) | | | - | | | | - | | | | 7.5 | | | | (2.8) | | | | 0.7 | | | | 14.3 | | | | (33.6) | | | | 26.9 | | | | (25.4) | | | | 38.4 | |
(b) | Gain (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.
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(c) | Gain (loss) recognized in earnings is related to the ineffective portion of the hedging relationship, including 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.
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(d) | Gain (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.
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| | Interest Rate Contracts | | Foreign Exchange Contracts | | Equity Contracts | | Commodity Contracts | | Total | | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | In Millions | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | Derivatives in Cash Flow Hedging Relationships: | | | | | | | | | | | | | | | | | | | | | Amount of gain (loss) recognized in other comprehensive income (OCI) | $ | 31.2 | $ | (6.9) | $ | (58.7) | $ | 11.3 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | (27.5) | $ | 4.4 | Amount of net (loss) gain reclassified from AOCI into earnings (a) | | (9.4) | | (9.5) | | (9.8) | | 4.6 | | 0 | | 0 | | 0 | | 0 | | (19.2) | | (4.9) | Derivatives in Fair Value Hedging Relationships: | | | | | | | | | | | | | | | | | | | | | Amount of net loss recognized in earnings (b) | | (0.3) | | (4.9) | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | (0.3) | | (4.9) | Derivatives Not Designated as Hedging Instruments: | | | | | | | | | | | | | | | | | | | | | Amount of net (loss) gain recognized in earnings (c) | | 0 | | (1.4) | | 4.2 | | 15.7 | | 47.7 | | 8.6 | | 134.6 | | (55.6) | | 186.5 | | (32.7) |
(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.
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: | | May 30, 2021 | | | Assets | | | Liabilities | | | | | | | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | | | | | | | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | In Millions | Gross Amounts of Recognized Assets | Gross Liabilities Offset in the Balance Sheet (a) | Net Amounts of Assets (b) | Financial Instruments | Cash Collateral Received | Net Amount (c) | | Gross Amounts of Recognized Liabilities | Gross Assets Offset in the Balance Sheet (a) | Net Amounts of Liabilities (b) | Financial Instruments | Cash Collateral Pledged | Net Amount (d) | Commodity contracts | $ | 31.6 | $ | 0 | $ | 31.6 | $ | (1.3) | $ | (9.1) | $ | 21.2 | | $ | (1.3) | $ | 0 | $ | (1.3) | $ | 1.3 | $ | 0 | $ | 0 | Interest rate contracts | | 29.8 | | 0 | | 29.8 | | 0 | | 0 | | 29.8 | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | Foreign exchange contracts | | 4.8 | | 0 | | 4.8 | | (4.1) | | 0 | | 0.7 | | | (37.9) | | 0 | | (37.9) | | 4.1 | | 0 | | (33.8) | Equity contracts | | 2.2 | | 0 | | 2.2 | | 0 | | 0 | | 2.2 | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | Total | $ | 68.4 | $ | 0 | $ | 68.4 | $ | (5.4) | $ | (9.1) | $ | 53.9 | | $ | (39.2) | $ | 0 | $ | (39.2) | $ | 5.4 | $ | 0 | $ | (33.8) |
| | | May 26, 2019 | | | May 31, 2020 | | | Assets | | Liabilities | | | Assets | | Liabilities | | | | | | | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | | | | | | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | | | | | | | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | | | | | | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | In Millions | | Gross Amounts of Recognized Assets | | Gross Liabilities Offset in the Balance Sheet (a) | | Net Amounts of Assets (b) | | Financial Instruments | | Cash Collateral Received | | Net Amount (c) | | Gross Amounts of Recognized Liabilities | | Gross Assets Offset in the Balance Sheet (a) | | Net Amounts of Liabilities (b) | | Financial Instruments | | Cash Collateral Pledged | | Net Amount (d) | | | Gross Amounts of Recognized Assets | | Gross Liabilities Offset in the Balance Sheet (a) | | Net Amounts of Assets (b) | | Financial Instruments | | Cash Collateral Received | | Net Amount (c) | | Gross Amounts of Recognized Liabilities | | Gross Assets Offset in the Balance Sheet (a) | | Net Amounts of Liabilities (b) | | Financial Instruments | | Cash Collateral Pledged | | Net Amount (d) | Commodity contracts | | $ | 6.6 | | | $ | - | | | $ | 6.6 | | | $ | (4.9 | ) | | $ | - | | | $ | 1.7 | | | $ | (7.9 | ) | | $ | - | | | $ | (7.9 | ) | | $ | 4.9 | | | $ | - | | | $ | (3.0) | | $ | 6.2 | $ | 0 | $ | 6.2 | $ | (4.2) | $ | 0 | $ | 2.0 | | $ | (30.1) | $ | 0 | $ | (30.1) | $ | 4.2 | $ | 15.9 | $ | (10.0) | Interest rate contracts | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2.2 | ) | | | - | | | | (2.2 | ) | | | - | | | | - | | | | (2.2) | | | 6.0 | | 0 | | 6.0 | | (0.8) | | 0 | | 5.2 | | (8.0) | | 0 | | (8.0) | | 0.8 | | 0 | | (7.2) | Foreign exchange contracts | | | 15.3 | | | | - | | | | 15.3 | | | | (5.1 | ) | | | - | | | | 10.2 | | | | (5.2 | ) | | | - | | | | (5.2 | ) | | | 5.1 | | | | - | | | | (0.1) | | | 38.6 | | 0 | | 38.6 | | (3.7) | | 0 | | 34.9 | | (4.0) | | 0 | | (4.0) | | 3.7 | | 0 | | (0.3) | Equity contracts | | | 0.7 | | | | - | | | | 0.7 | | | | (0.7 | ) | | | - | | | | - | | | | (5.8 | ) | | | - | | | | (5.8 | ) | | | 0.7 | | | | - | | | | (5.1) | | | 8.6 | | 0 | | 8.6 | | 0 | | 0 | | 8.6 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | Total | | $ | 22.6 | | | $ | - | | | $ | 22.6 | | | $ | (10.7 | ) | | $ | - | | | $ | 11.9 | | | $ | (21.1 | ) | | $ | - | | | $ | (21.1 | ) | | $ | 10.7 | | | $ | - | | | $ | (10.4) | | $ | 59.4 | $ | 0 | $ | 59.4 | $ | (8.7) | $ | 0 | $ | 50.7 | | $ | (42.1) | $ | 0 | $ | (42.1) | $ | 8.7 | $ | 15.9 | $ | (17.5) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | May 27, 2018 | | | | Assets | | | Liabilities | | | | | | | | | | | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | | | | | | | | | | | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | | | In Millions | | Gross Amounts of Recognized Assets | | | Gross Liabilities Offset in the Balance Sheet (a) | | | Net Amounts of Assets (b) | | | Financial Instruments | | | Cash Collateral Received | | | Net Amount (c) | | | Gross Amounts of Recognized Liabilities | | | Gross Assets Offset in the Balance Sheet (a) | | | Net Amounts of Liabilities (b) | | | Financial Instruments | | | Cash Collateral Pledged | | | Net Amount (d) | | Commodity contracts | | $ | 27.7 | �� | | $ | - | | | $ | 27.7 | | | $ | (1.1 | ) | | $ | - | | | $ | 26.6 | | | $ | (1.1 | ) | | $ | - | | | $ | (1.1 | ) | | $ | 1.1 | | | $ | - | | | $ | - | | Interest rate contracts | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (6.9 | ) | | | - | | | | (6.9 | ) | | | - | | | | - | | | | (6.9) | | Foreign exchange contracts | | | 11.8 | | | | - | | | | 11.8 | | | | (5.7 | ) | | | - | | | | 6.1 | | | | (7.2 | ) | | | - | | | | (7.2 | ) | | | 5.7 | | | | - | | | | (1.5) | | Equity contracts | | | 3.9 | | | | - | | | | 3.9 | | | | (0.4 | ) | | | - | | | | 3.5 | | | | (0.4 | ) | | | - | | | | (0.4 | ) | | | 0.4 | | | | - | | | | - | | Total | | $ | 43.4 | | | $ | - | | | $ | 43.4 | | | $ | (7.2 | ) | | $ | - | | | $ | 36.2 | | | $ | (15.6 | ) | | $ | - | | | $ | (15.6 | ) | | $ | 7.2 | | | $ | - | | | $ | (8.4) | |
(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 26, 2019,30, 2021, theafter-tax amounts of unrealized gains and losses in AOCI related to hedge derivatives follows:
| | | | | In Millions | | After-Tax Gain/(Loss) | | Unrealized losses from interest rate cash flow hedges
| | $ | (32.6) | | Unrealized gains from foreign currency cash flow hedges
| | | 13.2 | | After-tax loss in AOCI related to hedge derivatives
| | $ | (19.4) | |
In Millions | | After-Tax Gain/(Loss) | Unrealized gains from interest rate cash flow hedges | $ | 0.4 | Unrealized losses from foreign currency cash flow hedges | | (18.9) | After-tax loss in AOCI related to hedge derivatives | $ | (18.5) |
The net amount ofpre-tax gains and losses in AOCI as of May 26, 201930, 2021, that we expect to be reclassified into net earnings within the next 12 months is a $7.2$12.5 million net gain.loss.
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 26, 2019,30, 2021, was $7.4$11.0 million. We have posted no0 collateral under these contracts. If the credit-risk-related contingent features underlying these agreements had been triggered on May 26, 2019,30, 2021, we would have been required to post $7.4$11.0 million of collateral to counterparties.
CONCENTRATIONS OF CREDIT AND COUNTERPARTY CREDIT RISK
During fiscal 2019,2021, customer concentration was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | Percent of total | | Consolidated | | | North America Retail | | | Convenience Stores & Foodservice | | | Europe & Australia | | | Asia & Latin America | | | Pet | | Walmart (a): | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | | 20% | | | | 31% | | | | 7% | | | | 1% | | | | 4% | | | | 3% | | Accounts receivable | | | | | | | 22% | | | | 3% | | | | 1% | | | | 6% | | | | 9% | | | | | | | | | Five largest customers: | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | | | | | | 55% | | | | 45% | | | | 24% | | | | 12% | | | | 69% | |
(a) | Includes Walmart Inc. and its affiliates.
|
Percent of total | Consolidated | North America Retail | Convenience Stores & Foodservice | Europe & Australia | Asia & Latin America | Pet | Walmart (a): | | | | | | | | | | | | | Net sales | 20 | % | 29 | % | 7 | % | 0 | % | 5 | % | 13 | % | Accounts receivable | | | 28 | % | 6 | % | 0 | % | 5 | % | 14 | % | Five largest customers: | | | | | | | | | | | | | Net sales | | | 53 | % | 42 | % | 32 | % | 11 | % | 71 | % | (a) Includes Walmart Inc. and its affiliates. | | | | | | | | | |
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 $2.4$55.8 million, against which we do not hold $9.1 million of collateral. Under the terms of our swap agreements, some of our transactions require collateral or other security to support financial instruments subject to threshold levels of exposure and counterparty credit risk. Collateral assets are either cash or U.S. Treasury instruments and are held in a trust account that we may access if the counterparty defaults. We offer certain suppliers access to third partythird-party services that allow them to view our scheduled payments online. The third partythird-party services also allow suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party. We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third parties, or any financial institutions concerning this service. All of our accounts payable remain as obligations to our suppliers as stated in our supplier agreements. As of May 26, 2019, $1,049.830, 2021, $1,411.3 million of our accounts payable iswas payable to suppliers who utilize these third partythird-party services. As of May 31, 2020, $1,328.9 million of our accounts payable was payable to suppliers who utilize these third-party services.
NOTE 8.9. DEBT
NOTES PAYABLE
The components of notes payable and their respective weighted-average interest rates at the end of the periods were as follows:
| | | May 26, 2019 | | | May 27, 2018 | | | May 30, 2021 | | | | May 31, 2020 | | In Millions | | Notes Payable | | Weighted- Average Interest Rate | | | Notes Payable | | Weighted- Average Interest Rate | | | Notes Payable | | Weighted- Average Interest Rate | | | | Notes Payable | | Weighted- Average Interest Rate | | U.S. commercial paper | | $ | 1,298.5 | | | | 2.7 | % | | $ | 1,213.5 | | | 2.2% | | $ | 0 | | 0 | % | | $ | 99.9 | | 3.6 | % | Financial institutions | | | 170.2 | | | | 9.0 | | | | 336.3 | | | 6.2 | | | 361.3 | | 3.4 | % | | | 179.1 | | 5.1 | % | Total | | $ | 1,468.7 | | | | 3.4 | % | | $ | 1,549.8 | | | 3.1% | | $ | 361.3 | | 3.4 | % | | $ | 279.0 | | 4.6 | % |
To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding notes payable. Commercial paper is a continuing source of short-term financing. Weand have commercial paper programs available to us in the United States and Europe. We also have uncommitted and asset-backed credit lines that support our foreign operations.
The following table details thefee-paid committed and uncommitted credit lines we had available as of May 26, 2019:30, 2021:
| In Billions | | Facility Amount | | | Borrowed Amount | | | Facility Amount | | | Borrowed Amount | Credit facility expiring: | | | | | | | | | | May 2022 | | $ | 2.7 | | | $ | - | | | June 2019 | | | 0.2 | | | | - | | | April 2026 | | $ | 2.7 | | $ | 0 | September 2022 | | | 0.2 | | | 0 | Total committed credit facilities | | | 2.9 | | | | - | | | 2.9 | | | 0 | Uncommitted credit facilities | | | 0.7 | | | | 0.2 | | | 0.6 | | | 0.4 | Total committed and uncommitted credit facilities | | $ | 3.6 | | | $ | 0.2 | | $ | 3.5 | | $ | 0.4 |
In the fourth quarter of fiscal 2021, we entered into a $2.7 billion fee-paid committed credit facility that is scheduled to expire in April 2026. Concurrent with the execution of this credit facility, we terminated our existing $2.7 billion credit facility.
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 26, 2019.30, 2021.
LONG-TERM DEBT
In March 2019,the fourth quarter of fiscal 2021, we repaid $600.0 million of 3.2 percent fixed-rate notes and $850.0 million of floating-rate notes with cash on hand.
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 €300.0€500.0 million principal amount of 0.0 percent fixed-rate notes due January 15, 2020.November 16, 2021. We may redeemused the net proceeds to repay €200.0 million of 0.0 percent fixed-rate notes if certain tax laws change and for general corporate purposes.
In the first quarter of fiscal 2021, we would be obligated to pay additional amounts on the notes. Theseissued €500.0 million principal amount of 0.0 percent fixed-rate notes are senior unsecured obligations that include a change of control repurchase provision.due August 21, 2021. We used the net proceeds, together with cash on hand, to repay €500.0 million of 2.1 percent fixed-rate notes.
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 the fourth quarter of fiscal 2020, we issued $750.0 million of 2.875 percent fixed-rate notes due April 15, 2030. We used the net proceeds to repay a portion of our outstanding commercial paper and for general corporate purposes.
In the third quarter of fiscal 2020, we issued €600.0 million of 0.45 percent fixed-rate notes due January 15, 2026 and €200.0 million of 0.0 percent fixed-rate notes due November 16, 2020. We used the net proceeds, together with cash on hand, to repay €500.0 million of floating-rate notes and €300.0 million floating rateof 0.0 percent fixed-rate notes.
In February 2019,the second quarter of fiscal 2020, we repaid $1,150.0$500.0 million of 5.652.2 percent fixed-rate notes with proceeds from commercial paper.
In April 2018, we issued $4,800.0 million principal amount of fixed-rate notes. Interest on the notes is payable semi-annually in arrears. We may redeem the notes in whole, or in part, at any time at the applicable redemption price. The notes are senior unsecured obligations that include a change of control repurchase provision. The net proceeds were used to finance a portion of the Blue Buffalo acquisition. The principal amounts of these fixed-rate notes were as follows:
| | | | | In Millions | | Principal | | 4.2% notes due April 17, 2028
| | $ | 1,400.0 | | 3.7% notes due October 17, 2023
| | | 850.0 | | 4.0% notes due April 17, 2025
| | | 800.0 | | 4.7% notes due April 17, 2048
| | | 650.0 | | 3.2% notes due April 16, 2021
| | | 600.0 | | 4.55% notes due April 17, 2038
| | | 500.0 | | Total
| | $ | 4,800.0 | |
In April 2018, we issued $1,250.0 million principal amount of floating-rate notes. Interest on the notes is payable quarterly in arrears. The notes are not generally redeemable prior to maturity. These notes are senior unsecured obligations that include a change of control repurchase provision. The net proceeds were used to finance a portion of the Blue Buffalo acquisition. The principal amounts of these floating-rate notes were as follows:
| | | | | In Millions | | Principal | | Floating-rate notes due April 16, 2021
| | $ | 850.0 | | Floating-rate notes due October 17, 2023
| | | 400.0 | | Total
| | $ | 1,250.0 | |
In February 2018, we paid $113.8 million to repurchase $100.0 million of our previously issued 6.39 percent medium term notes due 2023. We recorded the $13.8 million premium paid in the repurchase as net interest expense.
In October 2017, we issued $500.0 million principal amount of 2.6 percent fixed-rate notes due October 12, 2022. Interest on the notes is payable semiannually in arrears. We may redeem the notes in whole, or in part, at any time at the applicable redemption price. The notes are senior unsecured obligations that include a change of control repurchase provision. The net proceeds, together with cash on hand, were used to repay $500.0 million of 1.4 percent fixed-rate notes.69
A summary of our long-term debt is as follows:
| In Millions | | May 26, 2019 | | | May 27, 2018 | | | May 30, 2021 | | May 31, 2020 | 4.2% notes due April 17, 2028 | | $ | 1,400.0 | | | $ | 1,400.0 | | $ | 1,400.0 | $ | 1,400.0 | 5.65% notes due February 15, 2019 | | | - | | | | 1,150.0 | | | 3.15% notes due December 15, 2021 | | | 1,000.0 | | | | 1,000.0 | | | 1,000.0 | | 1,000.0 | 3.7% notes due October 17, 2023 | | | 850.0 | | | | 850.0 | | | 850.0 | | 850.0 | Floating-rate notes due April 16, 2021 | | | 850.0 | | | | 850.0 | | | 0 | | 850.0 | 4.0% notes due April 17, 2025 | | | 800.0 | | | | 800.0 | | | 800.0 | | 800.0 | 3.2% notes due February 10, 2027 | | | 750.0 | | | | 750.0 | | | 750.0 | | 750.0 | 2.875% notes due April 15, 2030 | | | 750.0 | | 750.0 | Euro-denominated 0.45% notes due January 15, 2026 | | | 731.5 | | 666.1 | 4.7% notes due April 17, 2048 | | | 650.0 | | | | 650.0 | | | 446.2 | | 650.0 | 3.2% notes due April 16, 2021 | | | 600.0 | | | | 600.0 | | | 0 | | 600.0 | Euro-denominated 2.1% notes due November 16, 2020 | | | 560.1 | | | | 582.6 | | | 0 | | 555.1 | Euro-denominated 1.0% notes due April 27, 2023 | | | 560.1 | | | | 582.6 | | | 609.6 | | 555.1 | Euro-denominated floating-rate notes due January 15, 2020 | | | 560.1 | | | | 582.6 | | | 4.55% notes due April 17, 2038 | | | 500.0�� | | | | 500.0 | | | 282.4 | | 500.0 | 2.6% notes due October 12, 2022 | | | 500.0 | | | | 500.0 | | | 500.0 | | 500.0 | 5.4% notes due June 15, 2040 | | | 500.0 | | | | 500.0 | | | 382.5 | | 500.0 | 4.15% notes due February 15, 2043 | | | 500.0 | | | | 500.0 | | | 434.9 | | 500.0 | 3.65% notes due February 15, 2024 | | | 500.0 | | | | 500.0 | | | 500.0 | | 500.0 | 2.2% notes due October 21, 2019 | | | 500.0 | | | | 500.0 | | | Euro-denominated 1.5% notes due April 27, 2027 | | | 448.1 | | | | 466.1 | | | 487.7 | | 444.0 | Floating-rate notes due October 17, 2023 | | | 400.0 | | | | 400.0 | | | 400.0 | | 400.0 | Euro-denominated 0.0% notes due January 15, 2020 | | | 336.1 | | | | - | | | Euro-denominated floating-rate notes due March 20, 2019 | | | - | | | | 349.6 | | | Euro-denominated 2.2% notes due June 24, 2021 | | | 224.0 | | | | 232.8 | | | 243.9 | | 222.0 | Medium-term notes, 2.36% to 6.59%, due fiscal 2022 or later | | | 104.2 | | | | 104.2 | | | Other, including debt issuance costs and capital leases | | | (71.4) | | | | (81.7) | | | Euro-denominated 0.0% notes due November 16, 2020 | | | 0 | | 222.0 | Medium-term notes, 0.56% to 6.41%, due fiscal 2023 or later | | | 104.0 | | 104.2 | Euro-denominated 0.0% notes due August 21, 2021 | | | 609.6 | | 0 | Euro-denominated 0.0% notes due November 16, 2021 | | | 609.6 | | 0 | 3.0% notes due February 1, 2051 | | | 605.2 | | 0 | Other, including debt issuance costs, debt exchange participation premium, and finance leases | | | (246.4) | | (58.0) | | | 13,021.3 | | | 14,268.8 | | | 12,250.7 | | 13,260.5 | Less amount due within one year | | | (1,396.5) | | | | (1,600.1) | | | (2,463.8) | | (2,331.5) | Total long-term debt | | $ | 11,624.8 | | | $ | 12,668.7 | | $ | 9,786.9 | $ | 10,929.0 |
Principal payments due on long-term debt and capitalfinance leases in the next five fiscal years based on stated contractual maturities, our intent to redeem, or put rights of certain note holders are as follows: In Millions | | | | Fiscal 2022 | $ | 2,463.8 | | Fiscal 2023 | | 1,210.3 | | Fiscal 2024 | | 1,754.4 | | Fiscal 2025 | | 800.0 | | Fiscal 2026 | | 731.5 | |
| | | | | In Millions | | | | 2020 | | $ | 1,396.5 | | 2021 | | | 2,114.4 | | 2022 | | | 1,224.1 | | 2023 | | | 1,060.2 | | 2024 | | | 1,750.0 | |
Certain of our long-term debt agreements contain restrictive covenants. As of May 26, 2019,30, 2021, we were in compliance with all of these covenants. As of May 26, 2019,30, 2021, the $45.2$26.3 millionpre-tax loss recorded in AOCI associated with our previously designated interest rate swaps will be reclassified to net interest over the remaining lives of the hedged transactions. The amount expected to be reclassified from AOCI to net interest in fiscal 20202022 is a $9.4$4.8 millionpre-tax loss.
NOTE 9.10. REDEEMABLE AND NONCONTROLLING INTERESTS
Our principal redeemable and noncontrolling interests relate to our Yoplait SAS, Yoplait Marques SNC, Liberté Marques Sàrl, and General Mills Cereals, LLC (GMC) subsidiaries. In addition, we have 4 foreign subsidiaries that have noncontrolling interests totaling $4.9 million as of May 26, 2019.
We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl.Sàrl. Sodiaal holds the remaining interests in each of the entities. On the acquisition date, we recorded the $904.4 million fair value of Sodiaal’s 49 percent euro-denominated interest in Yoplait SAS as a redeemable interest 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. 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. Yoplait SAS pays dividends annually if it meets certain financial metrics set forth in its shareholders’ agreement. As of May 26, 2019,30, 2021, the redemption value of the euro-denominated redeemable interest was $551.7$604.9 million.
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 Sà Sàrl as noncontrolling interests on our Consolidated Balance Sheets. Yoplait Marques SNC earns a royalty stream through a licensing agreement with Yoplait SAS for the rights toYoplait and related trademarks. Liberté Marques Sà Sàrl earns a royalty stream through licensing agreements with certain Yoplait group companies for the rights toLiberté and related trademarks. These entities pay dividends annually based on their available cash as of their fiscal year end.
We paid dividends of $22.0$40.3 million in fiscal 20192021 and $37.7$56.9 million in fiscal 20182020 to Sodiaal under the terms of the Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl shareholder agreements.
A subsidiary of Yoplait SAS has entered into an exclusive milk supply agreement for its European operations with Sodiaal at market-determined prices through July 1, 2021.May 31, 2022. Net purchases totaled $210.8$212.1 million for fiscal 20192021 and $230.8$201.8 million for fiscal 2018.2020. During the second quarter of fiscal 2019, Sodiaal invested $55.7 million in Yoplait SAS.
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, 2018,2021, the floating preferred return rate on GMC’s Class A interests was reset to the sum of three-month LIBOR plus 142.5160 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.
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 26, 2019,30, 2021, we were in compliance with all of these covenants.
NOTE 10.11. STOCKHOLDERS’ EQUITY
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. On March 27, 2018, we issued 22.7 million shares of the Company’s common stock, par value $0.10 per share, at a public offering price of $44.00 per share for total proceeds of $1.0 billion. We paid $30.1 million in issuance costs, that were recorded in additionalpaid-in capital. The net proceeds of $969.9 million were used to finance a portion of the acquisition of Blue Buffalo.
Share repurchases were as follows:
| | | Fiscal Year | | | Fiscal Year | In Millions | | 2019 | | | 2018 | | | 2017 | | | 2021 | | 2020 | | 2019 | | | | Shares of common stock | | | - | | | | 10.9 | | | | 25.4 | | | 5.0 | | 0.1 | | 0 | Aggregate purchase price | | $ | 1.1 | | | $ | 601.6 | | | $ | 1,651.5 | | $ | 301.4 | $ | 3.4 | $ | 1.1 | | | |
The following table providestables provide details of total comprehensive income: | Fiscal 2021 | | General Mills | | Noncontrolling Interests | | Redeemable Interest | In Millions | | Pretax | | Tax | | Net | | Net | | Net | Net earnings, including earnings attributable to redeemable and noncontrolling interests | | | | | $ | 2,339.8 | $ | 6.5 | $ | (0.3) | Other comprehensive income (loss): | | | | | | | | | | | Foreign currency translation | $ | (6.1) | $ | 64.9 | | 58.8 | | 31.5 | | 84.8 | Net actuarial gain | | 464.9 | | (111.5) | | 353.4 | | 0 | | 0 | Other fair value changes: | | | | | | | | | | | Hedge derivatives | | (25.8) | | 6.5 | | (19.3) | | 0 | | (1.4) | Reclassification to earnings: | | | | | | | | | | | Hedge derivatives (a) | | 19.1 | | (5.7) | | 13.4 | | 0 | | 0.1 | Amortization of losses and prior service costs (b) | | 102.5 | | (23.6) | | 78.9 | | 0 | | 0 | Other comprehensive income | | 554.6 | | (69.4) | | 485.2 | | 31.5 | | 83.5 | Total comprehensive income | | | | | $ | 2,825.0 | $ | 38.0 | $ | 83.2 |
(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. | | | | | | | | | | | | | | | | | | | | | | | Fiscal 2019 | | | | General Mills | | | Noncontrolling Interests | | | Redeemable Interest | | In Millions | | Pretax | | | Tax | | | Net | | | Net | | | Net | | | | | | | | | | Net earnings, including earnings attributable to redeemable and noncontrolling interests | | | | | | | | | | $ | 1,752.7 | | | $ | 13.9 | | | $ | 19.6 | | | | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | $ | (38.3) | | | $ | - | | | | (38.3) | | | | (13.5) | | | | (31.0) | | Net actuarial loss | | | (325.6) | | | | 72.2 | | | | (253.4) | | | | - | | | | - | | Other fair value changes: | | | | | | | | | | | | | | | | | | | | | Hedge derivatives | | | 15.9 | | | | (3.7) | | | | 12.2 | | | | - | | | | (0.1) | | Reclassification to earnings: | | | | | | | | | | | | | | | | | | | | | Securities (a) | | | (2.6) | | | | 0.6 | | | | (2.0) | | | | - | | | | - | | Hedge derivatives (b) | | | 0.1 | | | | 0.4 | | | | 0.5 | | | | - | | | | 0.4 | | Amortization of losses and prior service costs (c) | | | 107.5 | | | | (22.9) | | | | 84.6 | | | | - | | | | - | | | | Other comprehensive loss | | | (243.0) | | | | 46.6 | | | | (196.4) | | | | (13.5) | | | | (30.7) | | | | Total comprehensive income (loss) | | | | | | | | | | $ | 1,556.3 | | | $ | 0.4 | | | $ | (11.1) | | | |
(a) | Gain reclassified from AOCI into earnings is reported in interest, net for securities.
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(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.
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(c) | Loss reclassified from AOCI into earnings is reported in benefit plannon-service income. Please refer to Note 2.
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(b)Loss reclassified from AOCI into earnings is reported in benefit plan non-service income. Please refer to Note 2. | Fiscal 2020 | | General Mills | | Noncontrolling Interests | | Redeemable Interest | In Millions | | Pretax | | Tax | | Net | | Net | | Net | Net earnings, including earnings attributable to redeemable and noncontrolling interests | | | | | $ | 2,181.2 | $ | 12.9 | $ | 16.7 | Other comprehensive income (loss): | | | | | | | | | | | Foreign currency translation | $ | (149.1) | $ | 0 | | (149.1) | | (2.6) | | (17.4) | Net actuarial loss | | (290.2) | | 65.6 | | (224.6) | | 0 | | 0 | Other fair value changes: | | | | | | | | | | | Hedge derivatives | | 4.4 | | (1.2) | | 3.2 | | 0 | | 0 | Reclassification to earnings: | | | | | | | | | | | Hedge derivatives (a) | | 4.3 | | (0.7) | | 3.6 | | 0 | | 0.5 | Amortization of losses and prior service costs (b) | | 101.3 | | (23.4) | | 77.9 | | 0 | | 0 | Other comprehensive loss | | (329.3) | | 40.3 | | (289.0) | | (2.6) | | (16.9) | Total comprehensive income (loss) | | | | | $ | 1,892.2 | $ | 10.3 | $ | (0.2) |
(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.
| | | | | | | | | | | | | | | | | | | | | | | Fiscal 2018 | | | | General Mills | | | Noncontrolling Interests | | | Redeemable Interest | | In Millions | | Pretax | | | Tax | | | Net | | | Net | | | Net | | | | Net earnings, including earnings attributable to redeemable and noncontrolling interests | | | | | | | | | | $ | 2,131.0 | | | $ | 13.4 | | | $ | 18.6 | | | | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | $ | (76.9 | ) | | $ | - | | | | (76.9 | ) | | | 13.5 | | | | 26.4 | | Net actuarial income | | | 185.5 | | | | (45.4) | | | | 140.1 | | | | - | | | | - | | Other fair value changes: | | | | | | | | | | | | | | | | | | | | | Securities | | | 1.8 | | | | (0.6) | | | | 1.2 | | | | - | | | | - | | Hedge derivatives | | | (64.7 | ) | | | 14.2 | | | | (50.5 | ) | | | - | | | | (0.3 | ) | Reclassification to earnings: | | | | | | | | | | | | | | | | | | | | | Securities (a) | | | (6.6 | ) | | | 1.5 | | | | (5.1 | ) | | | - | | | | - | | Hedge derivatives (b) | | | 24.9 | | | | (6.4) | | | | 18.5 | | | | - | | | | (1.1 | ) | Amortization of losses and prior service costs (c) | | | 176.8 | | | | (59.2) | | | | 117.6 | | | | - | | | | - | | | | Other comprehensive income | | | 240.8 | | | | (95.9) | | | | 144.9 | | | | 13.5 | | | | 25.0 | | | | Total comprehensive income | | | | | | | | | | $ | 2,275.9 | | | $ | 26.9 | | | $ | 43.6 | | | |
(a) | Gain reclassified from AOCI into earnings is reported in interest, net for securities.
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(b) | 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.
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(c) | Loss reclassified from AOCI into earnings is reported in benefit plannon-service income. Please refer to Note 2.
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| | | | | | | | | | | | | | | | | | | | | | | Fiscal 2017 | | | | General Mills | | | Noncontrolling Interests | | | Redeemable Interest | | In Millions | | Pretax | | | Tax | | | Net | | | Net | | | Net | | | | Net earnings, including earnings attributable to redeemable and noncontrolling interests | | | | | | | | | | $ | 1,657.5 | | | $ | 11.3 | | | $ | 32.3 | | | | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | $ | 19.5 | | | $ | - | | | | 19.5 | | | | 2.5 | | | | (15.7 | ) | Net actuarial income | | | 307.3 | | | | (109.4) | | | | 197.9 | | | | - | | | | - | | Other fair value changes: | | | | | | | | | | | | | | | | | | | | | Securities | | | 1.3 | | | | (0.5) | | | | 0.8 | | | | - | | | | - | | Hedge derivatives | | | 65.9 | | | | (16.1) | | | | 49.8 | | | | - | | | | 3.5 | | Reclassification to earnings: | | | | | | | | | | | | | | | | | | | | | Hedge derivatives (a) | | | (25.2) | | | | 2.4 | | | | (22.8 | ) | | | - | | | | (2.9 | ) | Amortization of losses and prior service costs (b) | | | 197.2 | | | | (74.7) | | | | 122.5 | | | | - | | | | - | | | | Other comprehensive income (loss) | | | 566.0 | | | | (198.3) | | | | 367.7 | | | | 2.5 | | | | (15.1 | ) | | | Total comprehensive income | | | | | | | | | | $ | 2,025.2 | | | $ | 13.8 | | | $ | 17.2 | | | |
(a) | 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.
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(b) | Loss reclassified from AOCI into earnings is reported in benefit plannon-service income. Please refer to Note 2.
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| Fiscal 2019 | | General Mills | | Noncontrolling Interests | | Redeemable Interest | In Millions | | Pretax | | Tax | | Net | | Net | | Net | Net earnings, including earnings attributable to redeemable and noncontrolling interests | | | | | $ | 1,752.7 | $ | 13.9 | $ | 19.6 | Other comprehensive income (loss): | | | | | | | | | | | Foreign currency translation | $ | (38.3) | $ | 0 | | (38.3) | | (13.5) | | (31.0) | Net actuarial loss | | (325.6) | | 72.2 | | (253.4) | | 0 | | 0 | Other fair value changes: | | | | | | | | | | | Hedge derivatives | | 15.9 | | (3.7) | | 12.2 | | 0 | | (0.1) | Reclassification to earnings: | | | | | | | | | | | Securities (a) | | (2.6) | | 0.6 | | (2.0) | | 0 | | 0 | Hedge derivatives (b) | | 0.1 | | 0.4 | | 0.5 | | 0 | | 0.4 | Amortization of losses and prior service costs (c) | | 107.5 | | (22.9) | | 84.6 | | 0 | | 0 | Other comprehensive (loss) | | (243.0) | | 46.6 | | (196.4) | | (13.5) | | (30.7) | Total comprehensive income (loss) | | | | | $ | 1,556.3 | $ | 0.4 | $ | (11.1) |
(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 2019, 2018,2021, 2020, and 2017,2019, except for reclassifications to earnings, changes in other comprehensive income (loss) were primarilynon-cash items. Accumulated other comprehensive loss balances, net of tax effects, were as follows:
| In Millions | | May 26, 2019 | | | May 27, 2018 | | | May 30, 2021 | | | May 31, 2020 | | | | Foreign currency translation adjustments | | $ | (739.9) | | | $ | (701.6) | | $ | (830.2) | | $ | (889.0) | Unrealized gain (loss) from: | | | | | | Securities | | | - | | | | 2.0 | | | Hedge derivatives | | | (19.4) | | | | (32.1) | | | Unrealized loss from hedge derivatives | | | (18.5) | | | (12.6) | Pension, other postretirement, and postemployment benefits: | | | | | | | | | | Net actuarial loss | | | (1,880.5) | | | | (1,723.6) | | | (1,718.4) | | | (2,022.5) | Prior service credits | | | 14.4 | | | | 26.3 | | | 137.9 | | | 9.7 | | | | Accumulated other comprehensive loss | | $ | (2,625.4) | | | $ | (2,429.0) | | $ | (2,429.2) | | $ | (2,914.4) | | | |
In the third quarter of fiscal 2018, we adopted new accounting requirements that provide the option to reclassify stranded income tax effects resulting from the TCJA from AOCI to retained earnings. We elected to reclassify the stranded income tax effects of the TCJA of $329.4 million from AOCI to retained earnings. Please see Note 14 for additional information.
NOTE 11.12. STOCK PLANS
We use broad-based stock plans to help ensure that management’s interests are aligned with those of our shareholders. As of May 26, 2019,30, 2021, a total of 30.323.5 million shares were available for grant in the form of stock options, restricted stock, restricted stock units, and shares of unrestricted stock under the 2017 Stock Compensation Plan (2017 Plan). The 2017 Plan also provides for the issuance of cash-settled share-based units, stock appreciation rights, and performance-based stock awards. Stock-based awards now outstanding include some granted under the 2007, 2009 and 2011 stock plans and the 2006, 2011, and 20112016 compensation plans fornon-employee directors, under which no further awards may be granted. The stock plans provide for potential accelerated vesting of awards upon retirement, termination, or death of eligible employees and directors.
Stock Options The estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:
| | | Fiscal Year | | | | | 2019 | | | 2018 | | | 2017 | | Fiscal Year | | | | 2021 | | 2020 | | 2019 | Estimated fair values of stock options granted | | $ | 5.35 | | | $ | 6.18 | | | $ | 8.80 | | $ | 8.03 | | | $ | 7.10 | | | $ | 5.35 | | Assumptions: | | | | | | | | | | | | | | | | | | Risk-free interest rate | | | 2.9 % | | | | 2.2% | | | | 1.7 % | | | 0.7 | % | | | 2.0 | % | | | 2.9 | % | Expected term | | | 8.5 years | | | | 8.2 years | | | | 8.5 years | | | 8.5 | years | | | 8.5 | years | | | 8.5 | years | Expected volatility | | | 16.3 % | | | | 15.8% | | | | 17.8 % | | | 19.5 | % | | | 17.4 | % | | | 16.3 | % | Dividend yield | | | 4.3 % | | | | 3.6% | | | | 2.9 % | | | 3.3 | % | | | 3.6 | % | | | 4.3 | % | | | |
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 and $25.5 million in fiscal 2018.2019.
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:
| | | | | | | | | Options Outstanding (Thousands) | | Weighted-Average Exercise Price Per Share | Weighted-Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (Millions) | | | Options Outstanding (Thousands) | | Weighted- Average Exercise Price Per Share | | | Weighted- Average Remaining Contractual Term (Years) | | | Aggregate Intrinsic Value (Millions) | | | | | | Balance as of May 27, 2018 | | | 28,963.8 | | | $ | 42.90 | | | | | | | Balance as of May 31, 2020 | | 18,164.6 | $ | 51.21 | 5.53 | $ | 222.6 | Granted | | | 3,149.8 | | | 46.09 | | | | | | 1,366.0 | | 61.65 | | | | Exercised | | | (7,968.1 | ) | | 30.96 | | | | | | (1,910.6) | | 39.15 | | | | Forfeited or expired | | | (492.5 | ) | | 53.73 | | | | | | (222.5) | | 55.80 | | | | | | | Outstanding as of May 26, 2019 | | | 23,653.0 | | | $ | 47.12 | | | | 4.82 | | | $ | 180.0 | | | | | | Exercisable as of May 26, 2019 | | | 14,219.0 | | | | 41.80 | | | | 2.79 | | | $ | 159.8 | | | | | | Outstanding as of May 30, 2021 | | 17,397.5 | $ | 53.29 | 5.26 | $ | 174.4 | Exercisable as of May 30, 2021 | | 9,018.7 | $ | 53.60 | 3.28 | $ | 91.4 |
Stock-based compensation expense related to stock option awards was $11.2 million in fiscal 2021, $13.4 million in fiscal 2020, and $14.7 million in fiscal 2019, $15.5 million in fiscal 2018, and $18.0 million in fiscal 2017. Compensation expense related to stock-based payments recognized in our Consolidated Statements of Earnings includes amounts recognized in restructuring, impairment, and other exit costs for fiscal 2018 and 2017.2019.
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: | | Fiscal Year | In Millions | | 2021 | | 2020 | | 2019 | Net cash proceeds | $ | 74.3 | $ | 263.4 | $ | 241.4 | Intrinsic value of options exercised | $ | 44.8 | $ | 132.9 | $ | 126.7 |
| | | | | | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | 2017 | | | | Net cash proceeds | | $ | 241.4 | | | $ | 99.3 | | | $ | 112.6 | | Intrinsic value of options exercised | | $ | 126.7 | | | $ | 83.6 | | | $ | 176.5 | | | |
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 three yearthree-year performance and vesting period. The sale or transfer of these awards is restricted during the vesting period. Participants holding restricted stock, but not restricted stock units or performance share units, are entitled to vote on matters submitted to holders of common stock for a vote. These awards accumulate dividends from the date of grant, but participants only receive payment if the awards vest.
Information on restricted stock unit and performance share unit activity follows:
| | | | | | | | | Equity Classified | | Liability Classified | | | Equity Classified | | | Liability Classified | | Share-Settled Units (Thousands) | | Weighted-Average Grant-Date Fair Value | | Share-Settled Units (Thousands) | | Weighted-Average Grant-Date Fair Value | | | Share- Settled Units (Thousands) | | Weighted- Average Grant-Date Fair Value | | | Share- Settled Units (Thousands) | | Weighted- Average Grant-Date Fair Value | | | | | | Non-vested as of May 27, 2018 | | | 3,731.8 | | | $ | 57.50 | | | | 121.3 | | | $ | 58.26 | | | Non-vested as of May 31, 2020 | | 4,925.5 | $ | 53.26 | | 103.3 | $ | 54.75 | Granted | | | 1,814.5 | | | 46.14 | | | | 33.8 | | | 46.16 | | 1,501.8 | | 61.23 | | 27.2 | | 61.59 | Vested | | | (880.6 | ) | | 51.30 | | | | (35.2 | ) | | 55.48 | | (1,199.3) | | 60.54 | | (28.0) | | 62.88 | Forfeited or expired | | | (393.4 | ) | | 58.44 | | | | (11.8 | ) | | 57.64 | | (155.2) | | 55.47 | | (4.9) | | 55.82 | | | | Non-vested as of May 26, 2019 | | | 4,272.3 | | | $ | 53.87 | | | | 108.1 | | | $ | 55.45 | | | | | | Non-vested as of May 30, 2021 | | 5,072.8 | $ | 53.84 | | 97.6 | $ | 54.26 |
| | | Fiscal Year | | | | | 2019 | | | 2018 | | | 2017 | | | Fiscal Year | | | | | 2021 | | | 2020 | | | 2019 | Number of units granted (thousands) | | | 1,848.2 | | | | 1,551.3 | | | | 1,462.3 | | | 1,529.0 | | | 1,947.6 | | | 1,848.2 | Weighted-average price per unit | | $ | 46.14 | | | $ | 55.12 | | | $ | 67.01 | | $ | 61.24 | | $ | 53.28 | | $ | 46.14 | | | |
The total grant-date fair value of restricted stock unit awards that vested was $47.1$74.4 million in fiscal 20192021 and $93.0$59.7 million in fiscal 2018.2020.
As of May 26, 2019,30, 2021, unrecognized compensation expense related tonon-vested stock options, restricted stock units, and performance share units was $98.4$103.0 million. This expense will be recognized over 2119 months, on average.
Stock-based compensation expense related to restricted stock units and performance share units was $78.7 million for fiscal 2021, $81.5 million for fiscal 2020, and $70.2 million for fiscal 2019, $62.4 million for fiscal 2018, and $77.9 million for fiscal 2017.2019. Compensation expense related to stock-based payments recognized in our Consolidated Statements of Earnings includes amounts recognized in restructuring, impairment, and other exit costs for fiscal 2019, 2018, and 2017.2019.
NOTE 12.13. EARNINGS PER SHARE
Basic and diluted EPS were calculated using the following:
| | | | | | | | | | | | | | | Fiscal Year | | In Millions, Except per Share Data | | 2019 | | | 2018 | | | 2017 | | | | Net earnings attributable to General Mills | | $ | 1,752.7 | | | $ | 2,131.0 | | | $ | 1,657.5 | | | | Average number of common shares—basic EPS | | | 600.4 | | | | 576.8 | | | | 587.1 | | Incremental share effect from: (a) | | | | | | | | | | | | | Stock options | | | 3.1 | | | | 6.9 | | | | 8.1 | | Restricted stock units, performance share units, and other | | | 1.9 | | | | 2.0 | | | | 2.8 | | | | Average number of common shares—diluted EPS | | | 605.4 | | | | 585.7 | | | | 598.0 | | | | Earnings per share—basic | | $ | 2.92 | | | $ | 3.69 | | | $ | 2.82 | | Earnings per share —diluted | | $ | 2.90 | | | $ | 3.64 | | | $ | 2.77 | | | |
(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:
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| Fiscal Year | In Millions, Except per Share Data | | 2021 | | | 2020 | | | 2019 | Net earnings attributable to General Mills | $ | 2,339.8 | | $ | 2,181.2 | | $ | 1,752.7 | Average number of common shares - basic EPS | | 614.1 | | | 608.1 | | | 600.4 | Incremental share effect from: (a) | | | | | | | | | Stock options | | 2.5 | | | 2.7 | | | 3.1 | Restricted stock units and performance share units | | 2.5 | | | 2.5 | | | 1.9 | Average number of common shares - diluted EPS | | 619.1 | | | 613.3 | | | 605.4 | Earnings per share — basic | $ | 3.81 | | $ | 3.59 | | $ | 2.92 | Earnings per share — diluted | $ | 3.78 | | $ | 3.56 | | $ | 2.90 |
(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: | | | | | | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | 2017 | | | | Anti-dilutive stock options, restricted stock units, and performance share units | | | 14.1 | | | | 8.9 | | | | 2.3 | | | |
| | | Fiscal Year | | In Millions | | 2021 | | 2020 | | 2019 | | Anti-dilutive stock options, restricted stock units, and performance share units | | 3.4 | | 8.4 | | 14.1 |
NOTE 13.14. RETIREMENT BENEFITS AND POSTEMPLOYMENT BENEFITS
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 no0 voluntary contributions to our principal U.S. plans in fiscal 20192021 or 2018.fiscal 2020. We do not expect to be required to make any contributions to our principal U.S. plans in fiscal 2020.2022. Our principal domesticU.S. retirement plan covering salaried employees has a provision that any excess pension assets would be allocated to active participants if the plan is terminated within five years of a change in control. All salaried employees hired on or after June 1, 2013, are eligible for a retirement program that does not include a defined benefit pension plan. In fiscal 2018, we approved an amendment to reorganize the U.S. qualified defined benefit pension plans and the supplemental pension plans that resulted in the spinoff of a portion of the General Mills Pension Plan (the Plan) and the 2005 Supplemental Retirement Plan and the Supplemental Retirement Plan (Grandfathered) (together, the Supplemental Plans) into new plans effective May 31, 2018. The benefits offered to the plans’ participants were unchanged. The result of the reorganization was the creation of the General Mills Pension Plan I (Plan I) and the 2005 Supplemental Retirement Plan I and the Supplemental Retirement Plan I (Grandfathered) (together, the Supplemental Plans I). The reorganization was made to facilitate a targeted investment strategy over time and to provide additional flexibility in evaluating opportunities to reduce risk and volatility. Actuarial gains and losses associated with the Plan and the Supplemental Plans are amortized over the average remaining service life of the active participants. Actuarial gains and losses associated with the Plan I and the Supplemental Plans I are amortized over the average remaining life of the participants.
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 United StatesU.S. salaried health care benefit plan is contributory, with retiree contributions based on years of service. We make decisions to fund related trusts for certain employees and retirees on an annual basis. We made no0 voluntary contributions to these plans in fiscal 20192021 or fiscal 2018.2020. We do not expect to be required to make any contributions to these plans in fiscal 2022.
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.
Health Care Cost Trend Rates
Assumed health care cost trends are as follows:
| | | Fiscal Year | | | | | 2019 | | | 2018 | | Fiscal Year | | | | | 2021 | | 2020 | Health care cost trend rate for next year | | | 6.4% and 6.7% | | | | 6.7% and 7.0% | | 6.0% and 6.3% | | 6.2% and 6.5% | Rate to which the cost trend rate is assumed to decline (ultimate rate) | | | 4.5% | | | | 4.5% | | 4.5 | % | | 4.5 | % | Year that the rate reaches the ultimate trend rate | | | 2029 | | | | 2029 | | 2029 | | | 2029 | | | | |
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 6.76.3 percent for retirees age 65 and over and 6.46.0 percent for retirees under age 65 at the end of fiscal 2019.2021. 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. A one percentage point change in the health care cost trend rate would have the following effects:
| | | | | | | | | In Millions | | One Percentage Point Increase | | | One Percentage Point Decrease | | | | Effect on the aggregate of the service and interest cost components in fiscal 2020 | | $ | 1.4 | | | $ | (1.3) | | Effect on the other postretirement accumulated benefit obligation as of May 26, 2019 | | $ | 43.5 | | | $ | (40.3) | | | |
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: | | Defined Benefit Pension Plans | | | Other Postretirement Benefit Plans | | | Postemployment Benefit Plans | | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | In Millions | | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | Change in Plan Assets: | | | | | | | | | | | | | | | | | | Fair value at beginning of year | $ | 6,993.2 | | $ | 6,291.6 | | $ | 793.5 | | $ | 753.8 | | | | | | | Actual return on assets | | 716.3 | | | 983.7 | | | 108.1 | | | 65.0 | | | | | | | Employer contributions | | 33.8 | | | 32.9 | | | (359.9) | | | 0.1 | | | | | | | Plan participant contributions | | 4.1 | | | 6.7 | | | 13.0 | | | 13.8 | | | | | | | Benefits payments | | (315.1) | | | (317.2) | | | (35.3) | | | (39.2) | | | | | | | Foreign currency | | 27.9 | | | (4.5) | | | 0 | | | 0 | | | | | | | Fair value at end of year (a) | $ | 7,460.2 | | $ | 6,993.2 | | $ | 519.4 | | $ | 793.5 | | | | | | | Change in Projected Benefit Obligation: | | | | | | | | | | | | | | | | | | Benefit obligation at beginning of year | $ | 7,640.2 | | $ | 6,750.7 | | $ | 773.7 | | $ | 824.1 | | $ | 150.3 | | $ | 128.0 | Service cost | | 104.4 | | | 92.7 | | | 8.5 | | | 9.4 | | | 9.3 | | | 8.3 | Interest cost | | 192.1 | | | 230.5 | | | 18.0 | | | 27.1 | | | 1.7 | | | 2.6 | Plan amendment | | 1.1 | | | 1.2 | | | (138.7) | | | 0 | | | 0 | | | 0 | Curtailment/other | | (5.8) | | | (1.2) | | | 0 | | | 0 | | | 5.1 | | | 0 | Plan participant contributions | | 4.1 | | | 6.7 | | | 13.0 | | | 13.8 | | | 0 | | | 0 | Medicare Part D reimbursements | | 0 | | | 0 | | | 2.5 | | | 2.7 | | | 0 | | | 0 | Actuarial loss (gain) | | 67.4 | | | 881.8 | | | (15.8) | | | (38.3) | | | 7.2 | | | 17.7 | Benefits payments | | (315.7) | | | (317.7) | | | (61.9) | | | (63.5) | | | (22.5) | | | (6.2) | Foreign currency | | 26.6 | | | (4.5) | | | 0.7 | | | (1.6) | | | 0.6 | | | (0.1) | Projected benefit obligation at end of year (a) | $ | 7,714.4 | | $ | 7,640.2 | | $ | 600.0 | | $ | 773.7 | | $ | 151.7 | | $ | 150.3 | Plan assets less than benefit obligation as of fiscal year end | $ | (254.2) | | $ | (647.0) | | $ | (80.6) | | $ | 19.8 | | $ | (151.7) | | $ | (150.3) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Defined Benefit Pension Plans | | | Other Postretirement Benefit Plans | | | Postemployment Benefit Plans | | | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | | Change in Plan Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Fair value at beginning of year | | $ | 6,177.4 | | | $ | 5,925.2 | | | $ | 726.1 | | | $ | 694.8 | | | | | | | | | | Actual return on assets | | | 391.9 | | | | 496.5 | | | | 41.3 | | | | 50.5 | | | | | | | | | | Employer contributions | | | 30.4 | | | | 41.8 | | | | 0.1 | | | | 0.1 | | | | | | | | | | Plan participant contributions | | | 3.9 | | | | 6.1 | | | | 15.0 | | | | 15.7 | | | | | | | | | | Benefits payments | | | (305.2) | | | | (298.0) | | | | (28.7) | | | | (35.0) | | | | | | | | | | Foreign currency | | | (6.8) | | | | 5.8 | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | Fair value at end of year (a) | | $ | 6,291.6 | | | $ | 6,177.4 | | | $ | 753.8 | | | $ | 726.1 | | | | | | | | | | | | | | | | | | | | Change in Projected Benefit Obligation: | | | | | | | | | | | | | | | | | | | | | | | | | Benefit obligation at beginning of year | | $ | 6,416.0 | | | $ | 6,458.6 | | | $ | 871.8 | | | $ | 951.4 | | | $ | 126.7 | | | $ | 134.5 | | Service cost | | | 94.6 | | | | 102.9 | | | | 9.9 | | | | 11.6 | | | | 7.6 | | | | 8.6 | | Interest cost | | | 248.0 | | | | 217.9 | | | | 33.1 | | | | 30.1 | | | | 3.0 | | | | 2.3 | | Plan amendment | | | - | | | | 25.4 | | | | - | | | | (0.7) | | | | 1.7 | | | | 1.2 | | Curtailment/other | | | (0.7) | | | | - | | | | - | | | | - | | | | - | | | | - | | Plan participant contributions | | | 3.9 | | | | 6.1 | | | | 15.0 | | | | 15.7 | | | | - | | | | - | | Medicare Part D reimbursements | | | - | | | | - | | | | 2.5 | | | | 3.0 | | | | - | | | | - | | Actuarial loss (gain) | | | 301.8 | | | | (102.0) | | | | (45.4) | | | | (73.9) | | | | 2.6 | | | | (7.0) | | Benefits payments | | | (305.8) | | | | (298.6) | | | | (62.2) | | | | (64.9) | | | | (13.2) | | | | (13.1) | | Foreign currency | | | (7.1) | | | | 5.7 | | | | (0.6) | | | | (0.5) | | | | (0.4) | | | | 0.2 | | | | Projected benefit obligation at end of year (a) | | $ | 6,750.7 | | | $ | 6,416.0 | | | $ | 824.1 | | | $ | 871.8 | | | $ | 128.0 | | | $ | 126.7 | | | | Plan assets less than benefit obligation as of fiscal year end | | $ | (459.1) | | | $ | (238.6) | | | $ | (70.3) | | | $ | (145.7) | | | $ | (128.0) | | | $ | (126.7) | | | |
(a)Plan assets and obligations are measured as of May 31, 2019,2021 and May 31, 2018.2020.
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 26, 2019,30, 2021, other postretirement benefit plans had benefit obligations of $498.4$412.4 million that exceeded plan assets of $233.7$310.1 million. As of May 27, 2018,31, 2020, other postretirement benefit plans had benefit obligations of $507.3$479.4 million that exceeded plan assets of $223.1$248.0 million. Postemployment benefit plans are not funded and had benefit obligations of $128.0$151.7 million and $126.7$150.3 million as of May 26, 201930, 2021 and May 27, 2018,31, 2020, respectively.
The accumulated benefit obligation for all defined benefit pension plans was $6,436.9$7,402.1 million as of May 26, 2019,30, 2021, and $6,076.6$7,285.2 million as of May 27, 2018.31, 2020.
Amounts recognized in AOCI as of May 26, 201930, 2021 and May 27, 2018,31, 2020, are as follows:
| | | Defined Benefit Pension Plans | | Other Postretirement Benefit Plans | | Postemployment Benefit Plans | | Total | | Defined Benefit Pension Plans | | Other Postretirement Benefit Plans | | Postemployment Benefit Plans | | Total | | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | In Millions | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | | | | Net actuarial (loss) gain | | $ | (1,961.6) | | | $ | (1,764.1) | | | $ | 81.0 | | | $ | 44.4 | | | $ | 0.1 | | | $ | (3.9) | | | $ | (1,880.5) | | | $ | (1,723.6) | | $ | (1,897.2) | | $ | (2,136.6) | | $ | 200.8 | | $ | 129.5 | | $ | (22.0) | | $ | (15.4) | | $ | (1,718.4) | | $ | (2,022.5) | Prior service (costs) credits | | | (5.9) | | | (7.1) | | | | 26.3 | | | 33.1 | | | | (6.0) | | | 0.3 | | | | 14.4 | | | 26.3 | | | 5.8 | | | (6.0) | | | 133.7 | | | 21.0 | | | (1.6) | | | (5.3) | | | 137.9 | | | 9.7 | | | | Amounts recorded in accumulated other comprehensive loss | | $ | (1,967.5) | | | $ | (1,771.2) | | | $ | 107.3 | | | $ | 77.5 | | | $ | (5.9) | | | $ | (3.6) | | | $ | (1,866.1) | | | $ | (1,697.3) | | $ | (1,891.4) | | $ | (2,142.6) | | $ | 334.5 | | $ | 150.5 | | $ | (23.6) | | $ | (20.7) | | $ | (1,580.5) | | $ | (2,012.8) | | | |
Plans with accumulated benefit obligations in excess of plan assets as of May 26, 201930, 2021 and May 27, 201831, 2020 are as follows: | | Defined Benefit Pension Plans | | | Fiscal Year | In Millions | | 2021 | | | 2020 | Projected benefit obligation | $ | 615.3 | | $ | 3,512.9 | Accumulated benefit obligation | | 556.2 | | | 3,200.1 | Plan assets at fair value | | 26.7 | | | 2,569.9 |
| | | | | | | | | | | Defined Benefit Pension Plans | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | | Projected benefit obligation | | $ | 589.7 | | | $ | 551.6 | | Accumulated benefit obligation | | | 552.2 | | | | 498.8 | | Plan assets at fair value | | | 14.4 | | | | 10.2 | | | |
Components of net periodic benefit expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Defined Benefit Pension Plans | | | Other Postretirement Benefit Plans | | | Postemployment Benefit Plans | | | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2017 | | | | Service cost | | $ | 94.6 | | | $ | 102.9 | | | $ | 119.7 | | | $ | 9.9 | | | $ | 11.6 | | | $ | 12.5 | | | $ | 7.6 | | | $ | 8.6 | | | $ | 8.8 | | Interest cost | | | 248.0 | | | | 217.9 | | | | 216.5 | | | | 33.1 | | | | 30.1 | | | | 32.2 | | | | 3.0 | | | | 2.3 | | | | 2.6 | | Expected return on plan assets | | | (445.8) | | | | (480.2) | | | | (486.7) | | | | (40.4) | | | | (52.2) | | | | (48.5) | | | | - | | | | - | | | | - | | Amortization of losses | | | 109.8 | | | | 177.0 | | | | 190.2 | | | | 0.6 | | | | 0.8 | | | | 2.5 | | | | 0.1 | | | | 0.8 | | | | 1.7 | | Amortization of prior service costs (credits) | | | 1.5 | | | | 1.9 | | | | 2.5 | | | | (5.5) | | | | (5.4) | | | | (5.4) | | | | 0.7 | | | | 0.6 | | | | 0.6 | | Other adjustments | | | - | | | | - | | | | 3.1 | | | | - | | | | - | | | | 1.3 | | | | 6.7 | | | | 6.7 | | | | 1.3 | | Settlement or curtailment losses | | | 0.3 | | | | - | | | | 3.8 | | | | - | | | | - | | | | (0.9) | | | | - | | | | - | | | | (1.4) | | | | Net expense | | $ | 8.4 | | | $ | 19.5 | | | $ | 49.1 | | | $ | (2.3) | | | $ | (15.1) | | | $ | (6.3) | | | $ | 18.1 | | | $ | 19.0 | | | $ | 13.6 | | | |
| Defined Benefit Pension Plans | | Other Postretirement Benefit Plans | | Postemployment Benefit Plans | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | In Millions | | 2021 | | 2020 | | 2019 | | | 2021 | | 2020 | | 2019 | | | 2021 | | 2020 | | 2019 | Service cost | $ | 104.4 | $ | 92.7 | $ | 94.6 | | $ | 8.5 | $ | 9.4 | $ | 9.9 | | $ | 9.3 | $ | 8.3 | $ | 7.6 | Interest cost | | 192.1 | | 230.5 | | 248.0 | | | 18.0 | | 27.1 | | 33.1 | | | 1.7 | | 2.6 | | 3.0 | Expected return on plan assets | | (420.9) | | (449.9) | | (445.8) | | | (34.7) | | (42.1) | | (40.4) | | | 0 | | 0 | | 0 | Amortization of losses (gains) | | 108.3 | | 106.0 | | 109.8 | | | (5.1) | | (2.1) | | 0.6 | | | 2.6 | | 0.4 | | 0.1 | Amortization of prior service costs (credits) | | 1.3 | | 1.6 | | 1.5 | | | (5.5) | | (5.5) | | (5.5) | | | 0.9 | | 0.9 | | 0.7 | Other adjustments | | 0 | | 0 | | 0 | | | 0 | | 0 | | 0 | | | 8.4 | | 17.7 | | 6.7 | Settlement or curtailment losses | | 14.9 | | 0 | | 0.3 | | | 0 | | 0 | | 0 | | | 0 | | 0 | | 0 | Net expense (income) | $ | 0.1 | $ | (19.1) | $ | 8.4 | | $ | (18.8) | $ | (13.2) | $ | (2.3) | | $ | 22.9 | $ | 29.9 | $ | 18.1 |
We expect to recognize the following amounts in net periodic benefit expense in fiscal 2020:Assumptions
| | | | | | | | | | | | | In Millions | | Defined Benefit Pension Plans | | | Other Postretirement Benefit Plans | | | Postemployment Benefit Plans | | | | Amortization of losses | | $ | 106.9 | | | $ | (2.1 | ) | | $ | 0.4 | | Amortization of prior service costs (credits) | | | 1.5 | | | | (5.5 | ) | | | 0.9 | | | |
Assumptions
Weighted-average assumptions used to determine fiscalyear-end benefit obligations are as follows:
| | | Defined Benefit Pension Plans | | | Other Postretirement Benefit Plans | | | Postemployment Benefit Plans | | | | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | | Defined Benefit Pension Plans | | Other Postretirement Benefit Plans | | Postemployment Benefit Plans | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Fiscal Year | | Fiscal Year | | Fiscal Year | | | | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | | Discount rate | | | 3.91 % | | | | 4.20 % | | | | 3.79 % | | | | 4.17 % | | | | 3.10 % | | | | 3.60 % | | 3.17 | % | 3.20 | % | | 3.03 | % | 3.02 | % | | 2.04 | % | 1.85 | % | Rate of salary increases | | | 4.17 | | | | 4.27 | | | | - | | | | - | | | | 4.47 | | | | 4.44 | | 4.39 | | 4.44 | | | 0 | | 0 | | | 4.46 | | 4.51 | | | | |
Weighted-average assumptions used to determine fiscal year net periodic benefit expense are as follows: | Defined Benefit Pension Plans | | | Other Postretirement Benefit Plans | | Postemployment Benefit Plans | | Fiscal Year | | | Fiscal Year | | Fiscal Year | | 2021 | | 2020 | | 2019 | | | 2021 | | 2020 | | 2019 | | | 2021 | | 2020 | | 2019 | | Discount rate | 3.20 | % | 3.91 | % | 4.20 | % | | 3.02 | % | 3.79 | % | 4.17 | % | | 1.86 | % | 3.10 | % | 3.60 | % | Service cost effective rate | 3.58 | | 4.19 | | 4.34 | | | 3.40 | | 4.04 | | 4.27 | | | 3.51 | | 3.51 | | 3.99 | | Interest cost effective rate | 2.55 | | 3.47 | | 3.92 | | | 2.29 | | 3.28 | | 3.80 | | | 2.83 | | 2.84 | | 3.37 | | Rate of salary increases | 4.44 | | 4.17 | | 4.27 | | | 0 | | 0 | | 0 | | | 4.47 | | 4.47 | | 4.44 | | Expected long-term rate of return on plan assets | 5.72 | | 6.95 | | 7.25 | | | 4.57 | | 5.67 | | 5.67 | | | 0 | | 0 | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Defined Benefit Pension Plans | | | Other Postretirement Benefit Plans | | | Postemployment Benefit Plans | | | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | | | | 2019 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2017 | | | | Discount rate (a) | | | 4.20 % | | | | 4.08 % | | | | 4.19 % | | | | 4.17 % | | | | 3.92 % | | | | 3.97 % | | | | 3.60 % | | | | 2.87 % | | | | 2.94 % | | Service cost effective rate | | | 4.34 | | | | 4.37 | | | | 4.57 | | | | 4.27 | | | | 4.27 | | | | 4.42 | | | | 3.99 | | | | 3.54 | | | | 3.55 | | Interest cost effective rate | | | 3.92 | | | | 3.45 | | | | 3.44 | | | | 3.80 | | | | 3.24 | | | | 3.17 | | | | 3.37 | | | | 2.67 | | | | 2.67 | | Rate of salary increases | | | 4.27 | | | | 4.25 | | | | 4.28 | | | | - | | | | - | | | | - | | | | 4.44 | | | | 4.46 | | | | 4.35 | | Expected long-term rate of return on plan assets | | | 7.25 | | | | 7.88 | | | | 8.17 | | | | 5.67 | | | | 7.59 | | | | 7.85 | | | | - | | | | - | | | | - | | | |
(a) | Determined utilizing the full yield curve method.
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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 also use discount rates as of May 31 to determine defined benefit pension, other postretirement benefit, and postemployment benefit plan income and expense for the following fiscal year. 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.
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 by asset category were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year 2019 | | | Fiscal Year 2018 | | In Millions | | Level 1 | | | Level 2 | | | Level 3 | | | Total Assets | | | Level 1 | | | Level 2 | | | Level 3 | | | Total Assets | | | | Fair value measurement of pension plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity (a) | | $ | 1,226.2 | | | $ | 664.6 | | | $ | - | | | $ | 1,890.8 | | | $ | 1,722.5 | | | $ | 782.1 | | | $ | - | | | $ | 2,504.6 | | Fixed income (b) | | | 1,635.5 | | | | 1,144.9 | | | | - | | | | 2,780.4 | | | | 1,264.5 | | | | 714.5 | | | | - | | | | 1,979.0 | | Real asset investments (c) | | | 179.4 | | | | 59.9 | | | | - | | | | 239.3 | | | | 229.1 | | | | 115.2 | | | | - | | | | 344.3 | | Other investments (d) | | | - | | | | - | | | | 0.3 | | | | 0.3 | | | | - | | | | - | | | | 0.3 | | | | 0.3 | | Cash and accruals | | | 186.5 | | | | - | | | | - | | | | 186.5 | | | | 124.4 | | | | - | | | | - | | | | 124.4 | | | | Fair value measurement of pension plan assets | | $ | 3,227.6 | | | $ | 1,869.4 | | | $ | 0.3 | | | $ | 5,097.3 | | | $ | 3,340.5 | | | $ | 1,611.8 | | | $ | 0.3 | | | $ | 4,952.6 | | | | Assets measured at net asset value (e) | | | | | | �� | | | | | | 1,194.3 | | | | | | | | | | | | | | | | 1,224.8 | | | | Total pension plan assets (f) | | | | | | | | | | | | | | $ | 6,291.6 | | | | | | | | | | | | | | | $ | 6,177.4 | | | | | | | | | | | | | Fair value measurement of postretirement benefit plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity (a) | | $ | - | | | $ | 66.8 | | | $ | - | | | $ | 66.8 | | | $ | - | | | $ | 35.8 | | | $ | - | | | $ | 35.8 | | Fixed income (b) | | | 139.7 | | | | 241.4 | | | | - | | | | 381.1 | | | | 241.0 | | | | 123.6 | | | | - | | | | 364.6 | | Real asset investments (c) | | | 0.3 | | | | - | | | | - | | | | 0.3 | | | | 8.0 | | | | - | | | | - | | | | 8.0 | | Cash and accruals | | | 11.1 | | | | - | | | | - | | | | 11.1 | | | | 19.1 | | | | - | | | | - | | | | 19.1 | | | | Fair value measurement of Postretirement benefit plan assets | | $ | 151.1 | | | $ | 308.2 | | | $ | - | | | $ | 459.3 | | | $ | 268.1 | | | $ | 159.4 | | | $ | - | | | $ | 427.5 | | | | Assets measured at net asset value (e) | | | | | | | | | | | | | | | 294.5 | | | | | | | | | | | | | | | | 298.6 | | | | Total postretirement benefit plan assets (f) | | | | | | | | | | | | | | $ | 753.8 | | | | | | | | | | | | | | | $ | 726.1 | | | |
(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.
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(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.
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(c) | Publicly traded common stock and limited partnerships in the energy and real estate sectors for purposes of total return. Investments include: energy and real estate 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.
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(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.
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(e) | Primarily private investments, insurance contracts, 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.
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(f) | Plan assets and obligations are measured as of May 31, 2019, and May 31, 2018.
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| May 31, 2021 | | May 31, 2020 | In Millions | | Level 1 | | Level 2 | | Level 3 | | Total Assets | | | Level 1 | | Level 2 | | Level 3 | | Total Assets | Fair value measurement of pension plan assets: | | | | | | | | | | | | | | | | | | Equity (a) | $ | 838.3 | $ | 697.2 | $ | 0 | $ | 1,535.5 | | $ | 1,039.6 | $ | 777.7 | $ | 0 | $ | 1,817.3 | Fixed income (b) | | 1,993.5 | | 1,936.3 | | 0 | | 3,929.8 | | | 1,833.3 | | 1,667.4 | | 0 | | 3,500.7 | Real asset investments (c) | | 277.9 | | 0.2 | | 0 | | 278.1 | | | 223.4 | | 0.1 | | 0 | | 223.5 | Other investments (d) | | 0 | | 0 | | 0.1 | | 0.1 | | | 0 | | 0 | | 0.2 | | 0.2 | Cash and accruals | | 180.0 | | 0 | | 0 | | 180.0 | | | 180.3 | | 0 | | 0 | | 180.3 | Fair value measurement of pension plan assets | $ | 3,289.7 | $ | 2,633.7 | $ | 0.1 | $ | 5,923.5 | | $ | 3,276.6 | $ | 2,445.2 | $ | 0.2 | $ | 5,722.0 | Assets measured at net asset value (e) | | | | | | | | 1,536.7 | | | | | | | | | 1,271.2 | Total pension plan assets | | | | | | | $ | 7,460.2 | | | | | | | | $ | 6,993.2 | | | | | | | | | | | | | | | | | | | Fair value measurement of postretirement benefit plan assets: | | | | | | | | | | | | | | | | | | Equity (a) | $ | 0.2 | $ | 0 | $ | 0 | $ | 0.2 | | $ | 0 | $ | 46.9 | $ | 0 | $ | 46.9 | Fixed income (b) | | 117.3 | | 0 | | 0 | | 117.3 | | | 157.5 | | 268.4 | | 0 | | 425.9 | Real asset investments (c) | | 0 | | 0 | | 0 | | 0 | | | 0.1 | | 0 | | 0 | | 0.1 | Cash and accruals | | 14.8 | | 0 | | 0 | | 14.8 | | | 16.7 | | 0 | | 0 | | 16.7 | Fair value measurement of postretirement benefit plan assets | $ | 132.3 | $ | 0 | $ | 0 | $ | 132.3 | | $ | 174.3 | $ | 315.3 | $ | 0 | $ | 489.6 | Assets measured at net asset value (e) | | | | | | | | 387.1 | | | | | | | | | 303.9 | Total postretirement benefit plan assets | | | | | | | $ | 519.4 | | | | | | | | $ | 793.5 |
(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 20192021 and fiscal 2018.2020.
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.
Weighted-average asset allocations for the past two fiscal years for our defined benefit pension and other postretirement benefit plans are as follows:
| | | Defined Benefit Pension Plans | | Other Postretirement Benefit Plans | | Defined Benefit Pension Plans | | | Other Postretirement Benefit Plans | | | Fiscal Year | | Fiscal Year | | Fiscal Year | | | Fiscal Year | | | 2019 | | 2018 | | 2019 | | 2018 | | 2021 | | 2020 | | | 2021 | | 2020 | | Asset category: | | | | | | | | | | | | | | | | | | United States equities | | | 20.3 % | | | 25.8 % | | | | 19.1 % | | | 20.6 % | | 15.4 | % | 19.7 | % | | 28.0 | % | 18.1 | % | International equities | | | 12.5 | | | 16.1 | | | | 11.2 | | | 10.7 | | 9.9 | | 11.0 | | | 13.9 | | 9.8 | | Private equities | | | 8.1 | | | 7.7 | | | | 4.9 | | | 4.2 | | 9.3 | | 6.2 | | | 15.1 | | 4.4 | | Fixed income | | | 46.7 | | | 36.1 | | | | 61.3 | | | 59.6 | | 54.6 | | 52.8 | | | 43.0 | | 64.8 | | Real assets | | | 12.4 | | | 14.3 | | | | 3.5 | | | 4.9 | | 10.8 | | 10.3 | | | 0 | | 2.9 | | Total | | | 100.0 % | | | 100.0 % | | | | 100.0 % | | | 100.0 % | | 100.0 | % | 100.0 | % | | 100.0 | % | 100.0 | % |
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: 1815 percent to equities in the United States; 119 percent to international equities; 98 percent to private equities; 4857 percent to fixed income; and 1412 percent to real assets (real estate, energy, and infrastructure). For other U.S. postretirement benefit plans, the long-term investment policy allocations are: 1828 percent to equities in the United States; 1014 percent to international equities; 414 percent to total private equities; 65and 44 percent to fixed income; and 3 percent to real assets (real estate, energy, and timber).income. The actual allocations to these asset classes may vary tactically around the long-term policy allocations based on relative market valuations. 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 2020.2022. Actual fiscal 20202022 contributions could exceed our current projections, as influenced by our decision to undertake discretionary funding of our benefit trusts and future changes in regulatory requirements. Estimated benefit payments, which reflect expected future service, as appropriate, are expected to be paid from fiscal 20202022 to 2029fiscal 2031 as follows: In Millions | Defined Benefit Pension Plans | | Other Postretirement Benefit Plans Gross Payments | | Medicare Subsidy Receipts | | Postemployment Benefit Plans | Fiscal 2022 | $ | 332.6 | | $ | 40.2 | | $ | 1.9 | | $ | 29.0 | Fiscal 2023 | | 339.6 | | | 36.6 | | | 0 | | | 21.0 | Fiscal 2024 | | 347.1 | | | 36.9 | | | 0 | | | 19.3 | Fiscal 2025 | | 355.7 | | | 37.3 | | | 0 | | | 17.8 | Fiscal 2026 | | 364.5 | | | 37.7 | | | 0 | | | 16.5 | Fiscal 2027-2031 | | 1,944.0 | | | 168.0 | | | 0 | | | 66.8 |
| | | | | | | | | | | | | | | | | In Millions | | Defined Benefit Pension Plans | | | Other Postretirement Benefit Plans Gross Payments | | | Medicare Subsidy Receipts | | | Postemployment Benefit Plans | | 2020 | | $ | 319.0 | | | $ | 52.4 | | | $ | 3.2 | | | $ | 20.1 | | 2021 | | | 324.9 | | | | 53.9 | | | | 3.1 | | | | 18.0 | | 2022 | | | 331.8 | | | | 55.7 | | | | 2.9 | | | | 16.6 | | 2023 | | | 338.8 | | | | 57.2 | | | | 3.0 | | | | 15.3 | | 2024 | | | 346.3 | | | | 56.9 | | | | 3.1 | | | | 14.3 | | 2025-2029 | | | 1,856.4 | | | | 282.4 | | | | 15.7 | | | | 59.6 | |
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 $22.3$22.5 million as of May 26, 2019,30, 2021, and $23.9$20.6 million as of May 27, 2018.31, 2020. We also sponsor defined contribution plans in many of our foreign locations. Our total recognized expense related to defined contribution plans was $76.1 million in fiscal 2021, $90.1 million in fiscal 2020, and $52.7 million in fiscal 2019, $49.2 million in fiscal 2018, and $54.1 million in fiscal 2017.2019.
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 5.14.3 million as of May 26, 2019,30, 2021, and 5.64.6 million as of May 27, 2018.31, 2020. The ESOP’s only assets are our common stock and temporary cash balances.
The Company stock fund and the ESOP collectively held $410.1$433.0 million and $392.1$464.8 million of Company common stock as of May 26, 201930, 2021, and May 27, 2018,31, 2020, respectively.
NOTE 14.15. INCOME TAXES
The components of earnings before income taxes andafter-tax earnings from joint ventures and the corresponding income taxes thereon are as follows:
| | | Fiscal Year | | | Fiscal Year | In Millions | | 2019 | | 2018 | | 2017 | | | 2021 | | 2020 | | 2019 | Earnings before income taxes andafter-tax earnings from joint ventures: | | | | | | | | | | | | | United States | | $ | 1,788.2 | | | $ | 1,884.0 | | | $ | 1,941.6 | | $ | 2,567.1 | $ | 2,402.1 | $ | 1,788.2 | Foreign | | | 293.8 | | | 251.6 | | | 329.7 | | | 290.3 | | 198.1 | | 293.8 | Total earnings before income taxes andafter-tax earnings from joint ventures | | $ | 2,082.0 | | | $ | 2,135.6 | | | $ | 2,271.3 | | $ | 2,857.4 | $ | 2,600.2 | $ | 2,082.0 | Income taxes: | | | | | | | | | | | | | Currently payable: | | | | | | | | | | | | | Federal | | $ | 151.9 | | | $ | 441.2 | | | $ | 368.5 | | $ | 369.8 | $ | 381.0 | $ | 151.9 | State and local | | | 35.3 | | | 35.2 | | | 21.1 | | | 47.5 | | 55.3 | | 35.3 | Foreign | | | 84.6 | | | 85.2 | | | 81.7 | | | 93.0 | | 73.8 | | 84.6 | Total current | | | 271.8 | | | 561.6 | | | 471.3 | | | 510.3 | | 510.1 | | 271.8 | Deferred: | | | | | | | | | | | | | Federal | | | 86.7 | | | (478.5 | ) | | 201.3 | | | 117.9 | | 67.8 | | 86.7 | State and local | | | 21.6 | | | 15.7 | | | 10.2 | | | 13.6 | | (56.6) | | 21.6 | Foreign | | | (12.3 | ) | | (41.5 | ) | | (27.6 | ) | | (12.7) | | (40.8) | | (12.3) | Total deferred | | | 96.0 | | | (504.3 | ) | | 183.9 | | | 118.8 | | (29.6) | | 96.0 | Total income taxes | | $ | 367.8 | | | $ | 57.3 | | | $ | 655.2 | | $ | 629.1 | $ | 480.5 | $ | 367.8 |
The following table reconciles the United States statutory income tax rate with our effective income tax rate: | Fiscal Year | | 2021 | | 2020 | | 2019 | | United States statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | State and local income taxes, net of federal tax benefits | 1.7 | | 2.0 | | 2.5 | | Foreign rate differences | 0.3 | | (0.8) | | 0 | | Provisional net tax benefit | 0 | | 0 | | (0.4) | | Stock based compensation | (0.4) | | (1.1) | | (1.2) | | Subsidiary reorganization (a) | 0 | | (2.0) | | 0 | | Capital loss (b) | 0 | | 0 | | (3.7) | | Other, net | (0.6) | | (0.6) | | (0.5) | | Effective income tax rate | 22.0 | % | 18.5 | % | 17.7 | % |
| | | | | | | | | | | | | | | Fiscal Year | | | | 2019 | | | 2018 | | | 2017 | | United States statutory rate | | | 21.0 | % | | | 29.4 | % | | | 35.0% | | State and local income taxes, net of federal tax benefits | | | 2.5 | | | | 1.7 | | | | 0.8 | | Foreign rate differences | | | - | | | | (2.0 | ) | | | (3.5) | | Provisional net tax benefit | | | (0.4 | ) | | | (24.5 | ) | | | - | | Stock based compensation | | | (1.2 | ) | | | (1.2 | ) | | | - | | Capital loss (a) | | | (3.7 | ) | | | - | | | | - | | Prior period tax adjustment | | | - | | | | 1.9 | | | | - | | Domestic manufacturing deduction | | | - | | | | (1.9 | ) | | | (2.8) | | Other, net | | | (0.5 | ) | | | (0.7 | ) | | | (0.7) | | Effective income tax rate | | | 17.7 | % | | | 2.7 | % | | | 28.8% | |
(a) | During the fourth quarter of fiscal 2019 we recorded a discrete benefit related to a capital loss carryback of $72.9 million.
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(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.
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows: In Millions | | May 30, 2021 | | May 31, 2020 | Accrued liabilities | $ | 58.5 | $ | 61.8 | Compensation and employee benefits | | 198.7 | | 171.4 | Unrealized hedges | | 16.3 | | 0 | Pension | | 61.4 | | 148.2 | Tax credit carryforwards | | 22.7 | | 12.5 | Stock, partnership, and miscellaneous investments | | 46.3 | | 80.2 | Capital losses | | 67.3 | | 65.9 | Net operating losses | | 160.5 | | 146.6 | Other | | 93.4 | | 87.0 | Gross deferred tax assets | | 725.1 | | 773.6 | Valuation allowance | | 229.2 | | 214.2 | Net deferred tax assets | | 495.9 | | 559.4 | Brands | | 1,413.8 | | 1,415.0 | Fixed assets | | 412.7 | | 378.3 | Intangible assets | | 256.2 | | 246.8 | Tax lease transactions | | 18.8 | | 21.5 | Inventories | | 36.2 | | 33.0 | Stock, partnership, and miscellaneous investments | | 364.0 | | 338.1 | Unrealized hedges | | 0 | | 22.4 | Other | | 112.6 | | 51.4 | Gross deferred tax liabilities | | 2,614.3 | | 2,506.5 | Net deferred tax liability | $ | 2,118.4 | $ | 1,947.1 |
| | | | | | | | | In Millions | | May 26, 2019 | | | May 27, 2018 | | Accrued liabilities | | $ | 50.9 | | | $ | 47.2 | | Compensation and employee benefits | | | 196.6 | | | | 210.2 | | Pension | | | 103.2 | | | | 57.1 | | Tax credit carryforwards | | | 7.3 | | | | 7.4 | | Stock, partnership, and miscellaneous investments | | | 104.2 | | | | 147.9 | | Capital losses | | | 73.1 | | | | 12.9 | | Net operating losses | | | 141.7 | | | | 161.2 | | Other | | | 71.3 | | | | 52.9 | | Gross deferred tax assets | | | 748.3 | | | | 696.8 | | Valuation allowance | | | 213.7 | | | | 176.0 | | Net deferred tax assets | | | 534.6 | | | | 520.8 | | Brands | | | 1,472.6 | | | | 1,498.7 | | Fixed assets | | | 377.8 | | | | 329.5 | | Intangible assets | | | 259.7 | | | | 255.1 | | Tax lease transactions | | | 23.9 | | | | 26.0 | | Inventories | | | 39.0 | | | | 38.8 | | Stock, partnership, and miscellaneous investments | | | 330.0 | | | | 317.1 | | Unrealized hedges | | | 27.9 | | | | 28.5 | | Other | | | 34.7 | | | | 30.9 | | Gross deferred tax liabilities | | | 2,565.6 | | | | 2,524.6 | | Net deferred tax liability | | $ | 2,031.0 | | | $ | 2,003.8 | |
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.
Information about our valuation allowance follows:
| | | | | In Millions | | May 26,
2019 | | Pillsbury acquisition losses
| | $ | 108.2 | | State and foreign loss carryforwards
| | | 27.0 | | Capital loss carryforwards
| | | 73.0 | | Other
| | | 5.5 | | | | Total
| | $ | 213.7 | | | |
In Millions | | May 30, 2021 | Pillsbury acquisition losses | $ | 107.9 | State and foreign loss carryforwards | | 29.1 | Capital loss carryforwards | | 67.3 | Other | | 24.9 | Total | $ | 229.2 |
As of May 26, 2019,30, 2021, we believe it ismore-likely-than-not that the remainder of our deferred tax assets are realizable. Information about our tax loss carryforwards follows:
| | | | | In Millions | | May 26,
2019 | | Foreign loss carryforwards
| | $ | 138.1 | | State operating loss carryforwards
| | | 12.5 | | | | Total tax loss carryforwards
| | $ | 150.6 | | | |
In Millions | | May 30, 2021 | Foreign loss carryforwards | $ | 162.9 | State operating loss carryforwards | | 8.2 | Total tax loss carryforwards | $ | 171.1 |
Our foreign loss carryforwards expire as follows: In Millions | | May 30, 2021 | Expire in fiscal 2022 and 2023 | $ | 2.2 | Expire in fiscal 2024 and beyond | | 20.7 | Do not expire | | 140.0 | Total foreign loss carryforwards | $ | 162.9 |
| | | | | In Millions | | May 26,
2019 | | Expire in fiscal 2020 and 2021
| | $ | 3.4 | | Expire in fiscal 2022 and beyond
| | | 14.2 | | Do not expire
| | | 120.5 | | | | Total foreign loss carryforwards
| | $ | 138.1 | | | |
On December 22, 2017,March 11, 2021, the TCJAAmerican Rescue Plan Act (ARPA) was signed into law. The TCJA results in significant revisions toARPA includes a provision expanding the U.S. corporate income tax system, including a reduction in the U.S. corporate income tax rate, implementation of a territorial system, anda one-time deemed repatriation tax on untaxed foreign earnings. As a result of the TCJA, we recorded a provisional benefit of $523.5 million during fiscal 2018. During fiscal 2019, we completed our accounting for the tax effects of the TCJA and recorded a benefit of $7.2 million which included adjustments to the transition tax and the measurement of our net U.S. deferred tax liability. While our accounting for the recorded impact of the TCJA is deemed to be complete, these amounts were based on prevailing regulations and currently available information, and any additional guidance issued by the Internal Revenue Service (IRS) could impact the aforementioned amounts in future periods. The legislation also includes provisions that affected our fiscal 2019 results, including but not limited to, a reduction in the U.S. corporate tax rate on domestic operations; the creation of a new minimum tax called the base erosion anti-abuse tax; a new provision that taxes U.S. allocated expenses as well as currently taxes certain income from foreign operations (Global Intangible Low Tax Income or GILTI); a new limitation on deductible interest expense; the repeal of the domestic manufacturing deduction; and limitations on the deductibility of certain executive compensation.
While the new legislation generally eliminates U.S. federal income tax on dividends from foreign subsidiaries going forward, certain income earned by foreign subsidiaries must be included currentlyemployee compensation beginning in our U.S. taxable income underfiscal 2028. We do not currently expect the new GILTI inclusion rules. Under U.S. GAAP, we are allowedARPA to make an accounting policy electionhave a material impact on our financial results, including our annual estimated effective tax rate, or on our liquidity. We will continue to monitor and recordassess the taxes as a period cost as incurred or factor such amountsimpact the ARPA may have on our business and financial results.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into the measurement of deferred taxes. Inlaw. The CARES Act and related notices included several significant provisions, including delaying certain payroll tax payments into fiscal 2018, we made an accounting policy election to record these taxes as a period cost.2022 and fiscal 2023.
As of May 26, 2019,30, 2021, we have not recognized a deferred tax liability for unremitted earnings of approximately $2.3 billion from our foreign operations because we currently believe our subsidiaries have invested the undistributed earnings indefinitely or the earnings will be remitted in atax-neutral transaction. It is not practicable for us to determine the amount of unrecognized tax expense on these reinvested earnings. Deferred taxes are recorded for earnings of our foreign operations when we determine that such earnings are no longer indefinitely reinvested. As a result of the TCJA, were-evaluated our assertion and have concluded that althoughAll earnings prior to fiscal 2018 will remain permanently reinvested, we will no longer make a permanent reinvestment assertion beginning with ourreinvested. Earnings from fiscal 2018 earnings. As part of the accounting for the TCJA, we recordedand later are not permanently reinvested and local country withholding taxes related to certain entities from which we began repatriating undistributedare recorded on earnings and will continue to record local country withholding taxes on all future earnings.each year. In addition, in fiscal 2018, we adopted Accounting Standards Update2018-02:Income Statement – Reporting Comprehensive Income (Topic 220) (ASU2018-02), which provides the option to reclassify stranded income tax
effects resulting from the TCJA from AOCI to retained earnings. We elected to reclassify the stranded income tax effects of the TCJA of $329.4 million from AOCI to retained earnings. This reclassification consists of deferred taxes originally recorded in AOCI that exceed the newly enacted federal corporate tax rate.
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 jurisdictions includejurisdiction is the United States (federal and state) and Canada.. Various tax examinations by United States state taxing authorities could be conducted for any open tax year, which vary by jurisdiction, but are generally from 3 to 5 years.
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 2018, we recorded an adjustment related to a prior year which increased income tax expense by $40.9 million. We determined the adjustment to be immaterial to our Consolidated Statements of Earnings for the fiscal year ended May 27, 2018. We have effectively settled all issues with the IRS for fiscal years 2015 and prior.
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 Yoki Alimentos S.A. The RFB has proposed adjustments that effectively eliminate the goodwill amortization benefits related to this transaction. During fiscal 2020, we received proposed adjustments related to the goodwill amortization benefits for our 2014 and 2015 tax return years. We believe we have meritorious defenses and intend to contest the disallowance.
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.
The following table sets forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for fiscal 20192021 and fiscal 2018.2020. Approximately $81.2$75.6 million of this total in fiscal 20192021 represents the amount that, if recognized, would affect our effective income tax rate in future periods. This amount differs from the gross unrecognized tax benefits presented in the table because certain of the liabilities below would impact deferred taxes if recognized. We also would record a decrease in U.S. federal income taxes upon recognition of the state tax benefits included therein.
| | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | Balance, beginning of year | | $ | 196.3 | | | $ | 135.5 | | Tax positions related to current year: | | | | | | | | | Additions | | | 19.5 | | | | 24.1 | | Reductions | | | (0.1) | | | | - | | Tax positions related to prior years: | | | | | | | | | Additions | | | 3.8 | | | | 54.8 | | Reductions | | | (13.2) | | | | (7.9) | | Settlements | | | (41.0) | | | | (3.9) | | Lapses in statutes of limitations | | | (26.2) | | | | (6.3) | | Balance, end of year | | $ | 139.1 | | | $ | 196.3 | |
| Fiscal Year | In Millions | | 2021 | | | 2020 | Balance, beginning of year | $ | 147.9 | | $ | 139.1 | Tax positions related to current year: | | | | | | Additions | | 20.1 | | | 18.7 | Tax positions related to prior years: | | | | | | Additions | | 6.3 | | | 2.3 | Reductions | | (7.2) | | | (6.0) | Settlements | | (2.1) | | | (2.9) | Lapses in statutes of limitations | | (19.7) | | | (3.3) | Balance, end of year | $ | 145.3 | | $ | 147.9 |
As of May 26, 2019,30, 2021, we expect to pay approximately $2.0$1.1 million of unrecognized tax benefit liabilities and accrued interest within the next 12 months. We are not able to reasonably estimate the timing of future cash flows beyond 12 months due to uncertainties in the timing of tax audit outcomes. The remaining amount of our unrecognized tax liability was classified in other liabilities.
We report accrued interest and penalties related to unrecognized tax benefit liabilities in income tax expense. For fiscal 2019,2021, we recognized $0.5$2.9 million oftax-related net interest and penalties, and had $26.0$24.9 million of accrued interest and penalties as of May 26, 2019.30, 2021. For fiscal 2018,2020, we recognized a net benefit$3.2 million of $3.1 million oftax-related net interest and penalties, and had $27.3$27.9 million of accrued interest and penalties as of May 27, 2018.31, 2020.
NOTE 15. LEASES, OTHER16. COMMITMENTS AND CONTINGENCIES Our leases are generally for warehouse space and equipment. Rent expense under all operating leases from continuing operations was $184.9 million in fiscal 2019, $189.4 million in fiscal 2018, and $188.1 million in fiscal 2017.
Some operating leases require payment of property taxes, insurance, and maintenance costs in addition to the rent payments. Contingent and escalation rent in excess of minimum rent payments and sublease income netted in rent expense were insignificant.
Noncancelable future lease commitments are:
| | | | | | | | | In Millions | | Operating Leases | | | Capital Leases | | | | | Fiscal 2020 | | $ | 120.0 | | | $ | 0.2 | | | | | Fiscal 2021 | | | 101.7 | | | | 0.1 | | | | | Fiscal 2022 | | | 85.0 | | | | - | | | | | Fiscal 2023 | | | 63.8 | | | | - | | | | | Fiscal 2024 | | | 49.1 | | | | - | | | | | After fiscal 2024 | | | 63.0 | | | | - | | | | | Total noncancelable future lease commitments | | $ | 482.6 | | | $ | 0.3 | | | | | Less: interest | | | | | | | - | | | | | Present value of obligations under capital leases | | | | | | $ | 0.3 | |
Depreciation on capital leases is recorded as depreciation expense in our results of operations.
As of May 26, 2019,30, 2021, we have issued guarantees and comfort letters of $681.6$146.6 million for the debt and other obligations of consolidated subsidiaries, and guarantees and comfort letters of $133.9 million for the debt and other obligations ofnon-consolidated affiliates, mainly CPW. In addition,off-balanceOff-balance sheet arrangements are generally limited to the future payments undernon-cancelable operating leases, which totaled $482.6 millionwere not material as of May 26, 2019.30, 2021.
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 16.17. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
We operate in the packaged foods industry. Our operating segments are as follows: North America Retail; Europe & Australia; Convenience Stores & Foodservice; Europe & Australia;Foodservice, Pet; and Asia & Latin America; and Pet.America.
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 businesssegment are ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain,snack bars, fruit andsnacks, 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.
Our Europe & Australia operating segment reflects retail and foodservice businesses in the greater Europe and Australia regions. Our product categories include refrigerated yogurt, nutritionmeal kits, snack bars, meal kits,salty snacks, ready-to-eat cereal,super-premium ice cream, refrigerated and grain snacks. 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.Our major product categories in our Convenience Stores & Foodservice operatingsegment are ready-to-eat cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products, baking mixes, and baking mixes.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.
Our Europe & AustraliaPet operating segment reflects retail and foodservice businessesincludes pet food products sold primarily in the greater EuropeUnited States in national pet superstore chains, e-commerce retailers, grocery stores, regional pet store chains, mass merchandisers, and Australia regions.veterinary clinics and hospitals. Our product categories include refrigerated yogurt, meal kits, super-premium ice cream, refrigerateddog and frozen dough products, shelf stablecat food (dry foods, wet foods, and treats) made with whole meats, fruits, and vegetables grain snacks, and dessertother high-quality natural ingredients. Our tailored pet product offerings address specific dietary, lifestyle, and baking mixes. We also sell super-premium ice cream directly to consumers through owned retail shops. Revenues from franchise fees are reported in the region or country where the franchisee is located.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.
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, dessert and baking mixes, meal kits, salty and grain snacks, wellness beverages, and refrigerated yogurt.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. 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. We are reporting the Pet operating segment resultson a one-month lag and accordingly, our fiscal 2018 results did not include Pet segment operating results.
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 domesticNorth American 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. These include gains and losses arising from the revaluation of certain grain inventories and gains and losses frommark-to-market valuation of certain commodity positions until passed back to our operating segments. These items affecting operating profit are centrally managed at the corporate level and are excluded from the measure of segment profitability reviewed by executive management. Under our supply chain organization, our manufacturing, warehouse, and distribution activities are substantially integrated across our operations in order to maximize efficiency and productivity. As a result, fixed assets and depreciation and amortization expenses are neither maintained nor available by operating segment. Our operating segment results were as follows:
| | | Fiscal Year | | Fiscal Year | In Millions | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | Net sales: | | | | | | | | | | | | | | | | | North America Retail | | $ | 9,925.2 | | | $ | 10,115.4 | | | $ | 10,196.9 | | $ | 10,995.4 | | $ | 10,750.5 | | $ | 9,925.2 | Europe & Australia | | | 1,981.5 | | | 1,838.9 | | | 1,886.7 | Convenience Stores & Foodservice | | | 1,969.1 | | | | 1,930.2 | | | | 1,870.0 | | | 1,742.4 | | | 1,816.4 | | | 1,969.1 | Europe & Australia | | | 1,886.7 | | | | 1,984.6 | | | | 1,824.5 | | | Pet | | | 1,732.4 | | | 1,694.6 | | | 1,430.9 | Asia & Latin America | | | 1,653.3 | | | | 1,710.2 | | | | 1,728.4 | | | 1,675.3 | | | 1,526.2 | | | 1,653.3 | Pet | | | 1,430.9 | | | | - | | | | - | | | Total | | $ | 16,865.2 | | | $ | 15,740.4 | | | $ | 15,619.8 | | $ | 18,127.0 | | $ | 17,626.6 | | $ | 16,865.2 | Operating profit: | | | | | | | | | | | | | | | | | North America Retail | | $ | 2,277.2 | | | $ | 2,217.4 | | | $ | 2,303.6 | | $ | 2,623.2 | | $ | 2,627.0 | | $ | 2,277.2 | Europe & Australia | | | 151.0 | | | 113.8 | | | 123.3 | Convenience Stores & Foodservice | | | 419.5 | | | | 392.6 | | | | 401.2 | | | 306.0 | | | 337.2 | | | 419.5 | Europe & Australia | | | 123.3 | | | | 142.1 | | | | 164.2 | | | Pet | | | 415.0 | | | 390.7 | | | 268.4 | Asia & Latin America | | | 72.4 | | | | 39.6 | | | | 83.6 | | | 85.6 | | | 18.7 | | | 72.4 | Pet | | | 268.4 | | | | - | | | | - | | | Total segment operating profit | | $ | 3,160.8 | | | $ | 2,791.7 | | | $ | 2,952.6 | | $ | 3,580.8 | | $ | 3,487.4 | | $ | 3,160.8 | | Unallocated corporate items | | | 339.8 | | | | 206.2 | | | | 273.6 | | | 212.1 | | | 509.1 | | | 339.8 | Divestitures loss | | | 30.0 | | | | - | | | | 6.5 | | | 53.5 | | | 0 | | | 30.0 | Restructuring, impairment, and other exit costs | | | 275.1 | | | | 165.6 | | | | 180.4 | | | 170.4 | | | 24.4 | | | 275.1 | Operating profit | | $ | 2,515.9 | | | $ | 2,419.9 | | | $ | 2,492.1 | | $ | 3,144.8 | | $ | 2,953.9 | | $ | 2,515.9 |
Net sales for our North America Retail operating units were as follows: | | Fiscal Year | In Millions | | 2021 | | | 2020 | | | 2019 | U.S. Meals & Baking | $ | 4,611.6 | | $ | 4,408.5 | | $ | 3,839.8 | U.S. Cereal | | 2,455.2 | | | 2,434.1 | | | 2,255.4 | U.S. Snacks | | 2,048.3 | | | 2,091.9 | | | 2,060.9 | Canada | | 953.2 | | | 897.0 | | | 862.4 | U.S. Yogurt and other | | 927.1 | | | 919.0 | | | 906.7 | Total | $ | 10,995.4 | | $ | 10,750.5 | | $ | 9,925.2 |
| | | | | | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | 2017 | | U.S. Meals & Baking | | $ | 3,839.8 | | | $ | 3,865.7 | | | $ | 3,876.6 | | U.S. Cereal | | | 2,255.4 | | | | 2,251.8 | | | | 2,251.8 | | U.S. Snacks | | | 2,060.9 | | | | 2,140.5 | | | | 2,098.2 | | U.S. Yogurt and Other | | | 906.7 | | | | 927.4 | | | | 1,064.3 | | Canada | | | 862.4 | | | | 930.0 | | | | 906.0 | | Total | | $ | 9,925.2 | | | $ | 10,115.4 | | | $ | 10,196.9 | |
Net sales by class of similar products were as follows: | Fiscal Year | In Millions | | 2021 | | | 2020 | | | 2019 | Snacks | $ | 3,574.2 | | $ | 3,529.7 | | $ | 3,487.4 | Convenient meals | | 3,030.2 | | | 2,814.3 | | | 2,538.6 | Cereal | | 2,868.9 | | | 2,874.1 | | | 2,672.8 | Yogurt | | 2,074.8 | | | 2,056.6 | | | 2,113.1 | Dough | | 1,866.1 | | | 1,801.1 | | | 1,661.9 | Pet | | 1,732.4 | | | 1,694.6 | | | 812.7 | Baking mixes and ingredients | | 1,695.5 | | | 1,674.2 | | | 1,663.7 | Super-premium ice cream | | 819.7 | | | 718.1 | | | 812.7 | Vegetables and other | | 465.2 | | | 463.9 | | | 484.1 | Total | $ | 18,127.0 | | $ | 17,626.6 | | $ | 16,865.2 |
| | | | | | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | 2017 | | Snacks | | $ | 3,359.3 | | | $ | 3,419.0 | | | $ | 3,302.2 | | Cereal | | | 2,672.2 | | | | 2,679.2 | | | | 2,673.2 | | Convenient meals | | | 2,641.8 | | | | 2,677.4 | | | | 2,653.6 | | Yogurt | | | 2,193.6 | | | | 2,320.1 | | | | 2,403.5 | | Dough | | | 1,692.8 | | | | 1,684.1 | | | | 1,690.6 | | Baking mixes and ingredients | | | 1,608.9 | | | | 1,653.4 | | | | 1,654.1 | | Pet | | | 1,430.9 | | | | - | | | | - | | Super-premium ice cream | | | 813.2 | | | | 803.7 | | | | 738.4 | | Other | | | 452.5 | | | | 503.5 | | | | 504.2 | | Total | | $ | 16,865.2 | | | $ | 15,740.4 | | | $ | 15,619.8 | |
The following table providestables provide financial information by geographic area:
| | | Fiscal Year | | Fiscal Year | In Millions | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | Net sales: | | | | | | | | | | | | | | | United States | | $ | 12,462.8 | | | $ | 11,115.6 | | | $ | 11,160.9 | | $ | 13,496.9 | | $ | 13,364.5 | | $ | 12,462.8 | Non-United States | | | 4,402.4 | | | | 4,624.8 | | | | 4,458.9 | | | 4,630.1 | | | 4,262.1 | | | 4,402.4 | Total | | $ | 16,865.2 | | | $ | 15,740.4 | | | $ | 15,619.8 | | $ | 18,127.0 | | $ | 17,626.6 | | $ | 16,865.2 |
| In Millions | | May 26, 2019 | | | May 27, 2018 | | | May 30, 2021 | | | May 31, 2020 | Cash and cash equivalents: | | | | | | | | | | United States | | $ | 51.0 | | | $ | 15.7 | | $ | 817.9 | | $ | 1,112.0 | Non-United States | | | 399.0 | | | | 383.3 | | | 687.3 | | | 565.8 | Total | | $ | 450.0 | | | $ | 399.0 | | $ | 1,505.2 | | $ | 1,677.8 |
| In Millions | | May 26, 2019 | | | May 27, 2018 | | | May 30, 2021 | | | May 31, 2020 | Land, buildings, and equipment: | | | | | | | | | | United States | | $ | 2,872.8 | | | $ | 3,031.7 | | $ | 2,714.7 | | $ | 2,761.6 | Non-United States | | | 914.4 | | | | 1,015.5 | | | 892.1 | | | 819.0 | Total | | $ | 3,787.2 | | | $ | 4,047.2 | | $ | 3,606.8 | | $ | 3,580.6 |
NOTE 17.18. SUPPLEMENTAL INFORMATION
The components of certain Consolidated Balance Sheet accounts are as follows:
| In Millions | | May 26, 2019 | | | May 27, 2018 | | | May 30, 2021 | | | May 31, 2020 | Receivables: | | | | | | | | | | Customers | | | $ 1,708.5 | | | | $ 1,712.6 | | $ | 1,674.5 | | $ | 1,648.3 | Less allowance for doubtful accounts | | | (28.8) | | | | (28.4) | | | (36.0) | | | (33.2) | Total | | | $ 1,679.7 | | | | $ 1,684.2 | | $ | 1,638.5 | | $ | 1,615.1 |
| | | | | | | | | In Millions | | May 26, 2019 | | | May 27, 2018 | | Inventories: | | | | | | | | | Raw materials and packaging | | $ | 434.9 | | | $ | 400.0 | | Finished goods | | | 1,245.9 | | | | 1,364.2 | | Grain | | | 92.0 | | | | 91.2 | | Excess of FIFO over LIFO cost (a) | | | (213.5) | | | | (213.2) | | Total | | $ | 1,559.3 | | | $ | 1,642.2 | |
(a) | Inventories of $974.8 million as of May 26, 2019, and $832.2 million as of May 27, 2018, were valued at LIFO. The difference between replacement cost and the stated LIFO inventory value is not materially different from the reserve for the LIFO valuation method.
| |
In Millions | | May 30, 2021 | | | May 31, 2020 | Inventories: | | | | | | Finished goods | $ | 1,506.9 | | $ | 1,142.6 | Raw materials and packaging | | 411.9 | | | 392.2 | Grain | | 111.2 | | | 93.6 | Excess of FIFO over LIFO cost (a) | | (209.5) | | | (202.1) | Total | $ | 1,820.5 | | $ | 1,426.3 |
| | | | | | | | | In Millions | | May 26, 2019 | | | May 27, 2018 | | Prepaid expenses and other current assets: | | | | | | | | | Other receivables | | $ | 250.2 | | | $ | 174.4 | | Prepaid expenses | | | 189.0 | | | | 165.6 | | Derivative receivables, primarily commodity-related | | | 42.2 | | | | 40.5 | | Grain contracts | | | 6.7 | | | | 7.1 | | Miscellaneous | | | 9.4 | | | | 10.7 | | Total | | $ | 497.5 | | | $ | 398.3 | | | | | In Millions | | May 26, 2019 | | | May 27, 2018 | | Land, buildings, and equipment: | | | | | | | | | Land | | $ | 73.6 | | | $ | 77.7 | | Buildings | | | 2,477.2 | | | | 2,396.3 | | Buildings under capital lease | | | 0.3 | | | | 0.3 | | Equipment | | | 6,548.3 | | | | 6,236.6 | | Equipment under capital lease | | | 5.7 | | | | 5.8 | | Capitalized software | | | 631.6 | | | | 593.6 | | Construction in progress | | | 343.8 | | | | 692.9 | | Total land, buildings, and equipment | | | 10,080.5 | | | | 10,003.2 | | Less accumulated depreciation | | | (6,293.3) | | | | (5,956.0) | | Total | | $ | 3,787.2 | | | $ | 4,047.2 | | | | | In Millions | | May 26, 2019 | | | May 27, 2018 | | Other assets: | | | | | | | | | Investments in and advances to joint ventures | | $ | 452.9 | | | $ | 499.6 | | Pension assets | | | 323.5 | | | | 309.9 | | Life insurance | | | 22.7 | | | | 26.9 | | Miscellaneous | | | 175.8 | | | | 106.6 | | Total | | $ | 974.9 | | | $ | 943.0 | | | | | In Millions | | May 26, 2019 | | | May 27, 2018 | | Other current liabilities: | | | | | | | | | Accrued trade and consumer promotions | | $ | 484.4 | | | $ | 499.6 | | Accrued payroll | | | 345.5 | | | | 347.0 | | Dividends payable | | | 19.2 | | | | 17.5 | | Accrued taxes | | | 37.5 | | | | 94.8 | | Accrued interest, including interest rate swaps | | | 92.6 | | | | 107.7 | | Grain contracts | | | 2.3 | | | | 1.2 | | Restructuring and other exit costs reserve | | | 36.5 | | | | 66.8 | | Derivative payable | | | 13.2 | | | | 8.3 | | Miscellaneous | | | 336.6 | | | | 302.9 | | Total | | $ | 1,367.8 | | | $ | 1,445.8 | |
(a)Inventories of $1,139.7 million as of May 30, 2021, and $892.6 million as of May 31, 2020, were valued at LIFO. The difference between replacement cost and the stated LIFO inventory value is not materially different from the reserve for the LIFO valuation method.In Millions | | May 30, 2021 | | | May 31, 2020 | Prepaid expenses and other current assets: | | | | | | Marketable investments | $ | 360.0 | | $ | 0 | Prepaid expenses | | 221.7 | | | 194.5 | Other receivables | | 139.1 | | | 85.2 | Derivative receivables | | 37.5 | | | 70.6 | Grain contracts | | 12.0 | | | 5.0 | Miscellaneous | | 20.0 | | | 46.8 | Total | $ | 790.3 | | $ | 402.1 |
In Millions | | May 30, 2021 | | | May 31, 2020 | Land, buildings, and equipment: | | | | | | Equipment | $ | 6,732.7 | | $ | 6,428.0 | Buildings | | 2,542.7 | | | 2,412.6 | Capitalized software | | 718.5 | | | 668.5 | Construction in progress | | 395.7 | | | 373.5 | Land | | 67.4 | | | 66.1 | Equipment under finance lease | | 7.8 | | | 5.8 | Buildings under finance lease | | 0.3 | | | 0.3 | Total land, buildings, and equipment | | 10,465.1 | | | 9,954.8 | Less accumulated depreciation | | (6,858.3) | | | (6,374.2) | Total | $ | 3,606.8 | | $ | 3,580.6 |
In Millions | | May 30, 2021 | | | May 31, 2020 | Other assets: | | | | | | Investments in and advances to joint ventures | $ | 566.4 | | $ | 566.7 | Right of use operating lease assets | | 378.6 | | | 365.2 | Pension assets | | 30.0 | | | 21.2 | Life insurance | | 18.6 | | | 19.5 | Miscellaneous | | 274.0 | | | 113.2 | Total | $ | 1,267.6 | | $ | 1,085.8 |
| | | | | | | | | In Millions | | May 26, 2019 | | | May 27, 2018 | | Other noncurrent liabilities: | | | | | | | | | Accrued compensation and benefits, including obligations for underfunded other postretirement benefit and postemployment benefit plans | | $ | 1,153.3 | | | $ | 999.4 | | Accrued taxes | | | 227.1 | | | | 265.3 | | Miscellaneous | | | 68.5 | | | | 76.3 | | Total | | $ | 1,448.9 | | | $ | 1,341.0 | |
89
In Millions | | May 30, 2021 | | | May 31, 2020 | Other current liabilities: | | | | | | Accrued trade and consumer promotions | $ | 580.9 | | $ | 550.4 | Accrued payroll | | 434.4 | | | 430.4 | Restructuring and other exit costs reserve | | 148.8 | | | 17.8 | Current portion of operating lease liabilities | | 111.2 | | | 102.0 | Accrued interest, including interest rate swaps | | 80.0 | | | 92.8 | Derivative payable, primarily commodity-related | | 39.2 | | | 39.2 | Accrued taxes | | 37.4 | | | 80.3 | Dividends payable | | 24.1 | | | 20.7 | Grain contracts | | 0.9 | | | 1.2 | Miscellaneous | | 330.3 | | | 298.5 | Total | $ | 1,787.2 | | $ | 1,633.3 |
In Millions | | May 30, 2021 | | | May 31, 2020 | Other noncurrent liabilities: | | | | | | Accrued compensation and benefits, including obligations for underfunded other postretirement benefit and postemployment benefit plans | $ | 707.7 | | $ | 958.7 | Noncurrent portion of operating lease liabilities | | 283.2 | | | 277.0 | Accrued taxes | | 215.6 | | | 238.6 | Miscellaneous | | 86.2 | | | 70.7 | Total | $ | 1,292.7 | | $ | 1,545.0 |
Certain Consolidated Statements of Earnings amounts are as follows:
| | | Fiscal Year | | | Fiscal Year | In Millions | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | Depreciation and amortization | | $ | 620.1 | | | $ | 618.8 | | | $ | 603.6 | | $ | 601.3 | | $ | 594.7 | | $ | 620.1 | Research and development expense | | | 221.9 | | | | 219.1 | | | | 218.2 | | | 239.3 | | | 224.4 | | | 221.9 | Advertising and media expense (including production and communication costs) | | | 601.6 | | | | 575.9 | | | | 623.8 | | | 736.3 | | | 691.8 | | | 601.6 |
The components of interest, net are as follows:
| | | Fiscal Year | | | Fiscal Year | Expense (Income), in Millions | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | Interest expense | | $ | 530.2 | | | $ | 389.5 | | | $ | 306.7 | | $ | 430.9 | | $ | 475.1 | | $ | 530.2 | Capitalized interest | | | (2.8) | | | | (4.1) | | | | (4.6) | | | (3.2) | | | (2.6) | | | (2.8) | Interest income | | | (5.6) | | | | (11.7) | | | | (7.0) | | | (7.4) | | | (6.0) | | | (5.6) | Interest, net | | $ | 521.8 | | | $ | 373.7 | | | $ | 295.1 | | $ | 420.3 | | $ | 466.5 | | $ | 521.8 |
Certain Consolidated Statements of Cash Flows amounts are as follows:
| | | Fiscal Year | | Fiscal Year | In Millions | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | Cash interest payments | | $ | 500.1 | | | $ | 269.5 | | | $ | 285.8 | | $ | 412.5 | | $ | 418.5 | | $ | 500.1 | Cash paid for income taxes | | | 440.8 | | | | 489.4 | | | | 551.1 | | | 636.1 | | | 403.3 | | | 440.8 |
NOTE 18.19. QUARTERLY DATA (UNAUDITED) Summarized quarterly data for fiscal 20192021 and fiscal 20182020 follows: | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | In Millions, Except Per Share Amounts | | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | Net sales | $ | 4,364.0 | $ | 4,002.5 | | $ | 4,719.4 | $ | 4,420.8 | | $ | 4,520.0 | $ | 4,180.3 | | $ | 4,523.6 | $ | 5,023.0 | Gross margin | | 1,590.4 | | 1,389.5 | | | 1,721.1 | | 1,569.1 | | | 1,553.9 | | 1,403.2 | | | 1,582.9 | | 1,768.1 | Net earnings attributable to General Mills | | 638.9 | | 520.6 | | | 688.4 | | 580.8 | | | 595.7 | | 454.1 | | | 416.8 | | 625.7 | EPS: | | | | | | | | | | | | | | | | | | | | Basic | $ | 1.04 | $ | 0.86 | | $ | 1.12 | $ | 0.96 | | $ | 0.97 | $ | 0.75 | | $ | 0.68 | $ | 1.03 | Diluted | $ | 1.03 | $ | 0.85 | | $ | 1.11 | $ | 0.95 | | $ | 0.96 | $ | 0.74 | | $ | 0.68 | $ | 1.02 |
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 a loss on the sale of our Laticínios Carolina business in Brazil of $53.5 million in the fourth quarter of fiscal 2021. In the fourth quarter of fiscal 2021, we recorded $9.5 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. We also recorded an $8.8 million gain related to indirect taxes in Brazil and an $11.2 million loss related to deferred taxes on amendments to reorganize certain U.S. retiree health and welfare benefit plans. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | In Millions, Except Per Share Amounts | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Net sales | | $ | 4,094.0 | | | $ | 3,769.2 | | | $ | 4,411.2 | | | $ | 4,198.7 | | | $ | 4,198.3 | | | $ | 3,882.3 | | | $ | 4,161.7 | | | $ | 3,890.2 | | Gross margin | | | 1,342.8 | | | | 1,313.3 | | | | 1,509.7 | | | | 1,446.2 | | | | 1,443.0 | | | | 1,256.5 | | | | 1,461.3 | | | | 1,419.6 | | Net earnings attributable to General Mills | | | 392.3 | | | | 404.7 | | | | 343.4 | | | | 430.5 | | | | 446.8 | | | | 941.4 | | | | 570.2 | | | | 354.4 | | EPS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | $ | 0.66 | | | $ | 0.70 | | | $ | 0.57 | | | $ | 0.75 | | | $ | 0.74 | | | $ | 1.64 | | | $ | 0.95 | | | $ | 0.60 | | Diluted | | $ | 0.65 | | | $ | 0.69 | | | $ | 0.57 | | | $ | 0.74 | | | $ | 0.74 | | | $ | 1.62 | | | $ | 0.94 | | | $ | 0.59 | |
During the fourth quarter of fiscal 2019,2020, we soldchanged the reporting period of our yogurt business in China and simultaneously entered intoPet segment from an April fiscal year end to a new Yoplait license agreement with the purchaser for their use of theYoplait brand. We recorded a gain of $5.4 million. In theMay fiscal year end to match our fiscal calendar. Accordingly, our fiscal 2020 fourth quarter results include 4 months of fiscal 2019, we recorded restructuring and impairment charges of $7.4 million. Please see Note 4 for more information. We recorded $4.3 million of integration costs relatedPet segment results compared to the acquisition of Blue Buffalo and $9.8 million of gains related to an investment valuation adjustment3 months in the fourth quarter of fiscal 2019. WeThe fourth quarter of fiscal 2020 also recorded a tax benefitincluded an additional week of $72.9 million inresults across all other segments. In the fourth quarter of fiscal 2019. Please see Note 14 for more information. We2020, we recorded brand intangible asset impairment charges of $96.9 million in the fourth quarter of fiscal 2018. Please see Note 6 for more information. We also recorded $64.5$19.3 million of transaction and integration costsexpense due to a product recall related to the acquisitionour international Green Giant business and $11.5 million of Blue Buffalo in the fourth quarter of fiscal 2018.restructuring charges.
Glossary Glossary
Accelerated depreciation associated with restructured assets.The increase in depreciation expense caused by updating the salvage value and shortening the useful life of depreciable fixed assets to coincide with the end of production under an approved restructuring plan, but only if impairment is not present.
AOCI.AOCI. Accumulated other comprehensive income (loss).
Adjusted diluted EPS.Diluted EPS adjusted for certain items affectingyear-to-year comparability.
Adjusted EBITDA.The calculation of earnings before income taxes andafter-tax earnings from joint ventures, net interest, and depreciation and amortization adjusted for certain items affectingyear-to-year comparability.
Adjusted operating profit.Operating profit adjusted for certain items affectingyear-to-year comparability.
Adjusted operating profit margin.Operating profit adjusted for certain items affectingyear-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 period.period. To present this information, current period results for entities reporting in currencies other than United States dollars are translated into United States dollars at the average exchange rates in effect during the corresponding period of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year.year. Therefore, the foreign currency impact is equal to current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal 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)(EBITDA).The calculation of earnings before income taxes andafter-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 liability.liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment.judgment. The three levels are defined as follows:
| | | Level 1: | | 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 inputs used in pricing the asset or liability. |
Focus 6 platforms. The Focus 6 platforms 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 Convenience Stores & Foodservice segment consist of cereal, yogurt, snacks, frozen meals, biscuits, and baking mixes. inputs used in pricing the asset or liability.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 affectingyear-to-year comparability.
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 noncontrollingredeemable and redeemablenoncontrolling interests and the related fair values of net assets acquired.
Gross margin. Net sales less cost of sales.
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 period.period. Hedge accounting is permitted for certain hedging instruments and hedged items only if the hedging relationship is highly effective, and only prospectively from the date a hedging relationship is formally documented.
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.
Netdebt-to-adjusted EBITDA ratio.Net debt divided by Adjusted EBITDA.
Netmark-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 Debtdebt divided by cash provided by operating activities.
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. TCJA. U.S. Tax Cuts and Jobs Act which was signed into law on December 22, 2017.
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.
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 26, 2019,30, 2021, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or 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 26, 2019,30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 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 26, 2019.30, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control – Integrated Framework (2013).
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 26, 2019.30, 2021.
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/ D. L. Mulligan
| | | J. L. Harmening
| | D. L. Mulligan
| Chief Executive Officer
| | Chief Financial Officer
|
/s/ J. L. Harmening/s/ K. A. Bruce
J. L. HarmeningK. A. Bruce Chief Executive OfficerChief Financial Officer
June 27, 201930, 2021
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 Item 8 of this report.
ITEM 9B - Other Information None.
None.
PART III
ITEM 10 - Directors, Executive Officers and Corporate Governance
The information contained in the sections entitled “Proposal Number 1—1 - Election of Directors,”Directors” and “Shareholder Director Nominations,” and “Section 16(a) Beneficial Ownership Reporting Compliance”Nominations” contained in our definitive Proxy Statement for our 20192021 Annual Meeting of Shareholders is incorporated herein by reference.
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 20192021 Annual Meeting of Shareholders is incorporated herein by reference.
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 20192021 Annual Meeting of Shareholders is incorporated herein by reference.
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 20192021 Annual Meeting of StockholdersShareholders is incorporated herein by reference. EQUITY COMPENSATION PLAN INFORMATION
Equity Compensation Plan Information
The following table provides certain information as of May 26, 2019,30, 2021, with respect to our equity compensation plans:
| | | | | | | | | | | | | Plan Category | | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (1) | | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (2)(a) | | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (1)) (3) | Equity compensation plans approved by security holders | | | 30,678,206 | (b) | | $ | 47.12 | | | | 30,265,462 | (d) | Equity compensation plans not approved by security holders | | | 123,190 | (c) | | $ | - | | | | - | | Total | | | 30,801,396 | | | $ | 47.12 | | | | 30,265,462 | |
(a) | Only includes the weighted-average exercise price of outstanding options, whose weighted-average term is 4.82 years.
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(b) | Includes 23,652,995 stock options, 3,692,867 restricted stock units, 687,728 performance share units (assuming pay out for target performance), and 2,644,616 restricted stock units that have vested and been deferred.
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(c) | Includes 123,190 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.
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(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 30,265,462 shares available for grant at May 26, 2019.
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Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (1) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (2) (a) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (1)) (3) | Equity compensation plans approved by security holders | 24,887,956 | (b) | $ | 53.29 | 23,482,523 | (d) | Equity compensation plans not approved by security holders | 109,604 | (c) | | - | - | | Total | 24,997,560 | | $ | 53.29 | 23,482,523 | |
(a)Only includes the weighted-average exercise price of outstanding options, whose weighted-average term is 5.26 years. (b)Includes 17,397,504 stock options, 3,992,705 restricted stock units, 1,177,652 performance share units (assuming pay out for target performance), and 2,320,095 restricted stock units that have vested and been deferred. (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 20192021 Annual Meeting of Shareholders is incorporated herein by reference.
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 20192021 Annual Meeting of Shareholders is incorporated herein by reference.
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 26, 2019,30, 2021, May 27, 2018,31, 2020, and May 28, 2017.26, 2019.
Consolidated Statements of Comprehensive Income for the fiscal years ended May 26, 2019,30, 2021, May 27, 2018,31, 2020, and May 28, 2017.26, 2019.
Consolidated Balance Sheets as of May 26, 201930, 2021 and May 27, 2018.31, 2020.
Consolidated Statements of Cash Flows for the fiscal years ended May 26, 2019,30, 2021, May 27, 2018,31, 2020, and May 28, 2017.26, 2019.
Consolidated Statements of Total Equity and Redeemable Interest for the fiscal years ended May 26, 2019,30, 2021, May 27, 2018,31, 2020, and May 28, 2017.26, 2019.
Notes to Consolidated Financial Statements.
Report of Management Responsibilities.
Report of Independent Registered Public Accounting Firm.
| 2. | Financial Statement Schedule:
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2.Financial Statement Schedule:
For the fiscal years ended May 26, 2019,30, 2021, May 27, 2018,31, 2020, and May 28, 2017:26, 2019:
II – Valuation and Qualifying Accounts
3.Exhibits: 3. Exhibits:
Exhibit No. | | Description | Exhibit No.3.1
| | Description
| | | 2.1 | | Agreement and Plan of Merger, dated February 22, 2018, by and among the Company, Blue Buffalo Pet Products, Inc., and Bravo Merger Corp. (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form8-K filed February 23, 2018). | | | 3.1 | | Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Annual Report on Form10-K for the fiscal year ended May 31, 2009). |
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| 3.2 | | By-laws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form8-K filed March 8, 2016). |
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| 4.1 | | Indenture, dated as of February 1, 1996, between the Company and U.S. Bank National Association (f/k/a First Trust of Illinois, National Association) (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on FormS-3 filed February 6, 1996 (File no.333-00745)). |
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| 4.2 | | First Supplemental Indenture, dated as of May 18, 2009, between the Company and U.S. Bank National Association (incorporated herein by reference to Exhibit 4.2 to Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009). |
| | | Exhibit No.
| | Description
| 4.3 | | 4.3 | | Description of the Company’s registered securities. |
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| 10.1*10.1* | | 2001 Compensation Plan forNon-Employee Directors (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended August 29, 2010). |
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| 10.2*10.2* | | 2006 Compensation Plan forNon-Employee Directors (incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended August 29, 2010). |
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| 10.3*10.3*
10.4*
10.5* | | 2007 Stock Compensation Plan (incorporated herein by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended August 29, 2010). | | | 10.4* | | 2009 Stock Compensation Plan (incorporated herein by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended August 29, 2010). | | | 10.5* | |
2011 Stock Compensation Plan (incorporated herein by reference to Exhibit 10.6 to the Company’s Annual Report on Form10-K for the fiscal year ended May 31, 2015). | | | 10.6* | |
2011 Compensation Plan forNon-Employee Directors (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended November 27, 2011). |
10.6* | | 10.7* | |
2016 Compensation Plan forNon-Employee Directors (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended November 27, 2016).
| 10.7* | | 10.8* | | Executive Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended November 28, 2010). |
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| 10.9*10.8* | | Separation Pay and Benefits Program for Officers (incorporated herein by reference to Exhibit 10.1110.1 to the Company’s AnnualQuarterly Report on Form10-K 10-Q for the fiscal yearquarter ended May 25, 2014)February 23, 2020). |
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| 10.10*10.9* | | Supplemental Savings Plan (incorporated herein by reference to Exhibit 10.1110.4 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended February 22, 2009)28, 2021). |
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| 10.11*10.10* | | Supplemental Retirement Plan (Grandfathered) (incorporated herein by reference to Exhibit 10.1110.1 to the Company’s AnnualQuarterly Report on Form10-K 10-Q for the fiscal yearquarter ended May 27, 2018)February 28, 2021).
| 10.11* | | 10.12* | | 2005 Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.1210.3 to the Company’s AnnualQuarterly Report on Form10-K 10-Q for the fiscal yearquarter ended May 27, 2018)February 28, 2021).
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| 10.13*10.12* | | Deferred Compensation Plan (Grandfathered) (incorporated herein by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended February 22, 2009). |
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| 10.14*10.13* | | 2005 Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.1510.5 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended February 22, 2009)28, 2021). |
| |
| Exhibit No.10.14*
| | Description
| | | 10.15* | | Executive Survivor Income Plan (incorporated herein by reference to Exhibit 10.6 to the Company’s Annual Report on Form10-K for the fiscal year ended May 29, 2005). |
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| 10.16*10.15* | | Supplemental Benefits Trust Agreement, amended and restated as of September 26, 1988, between the Company and Norwest Bank Minnesota, N.A. (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended November 27, 2011). |
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| 10.17*10.16* | | Supplemental Benefits Trust Agreement, dated September 26, 1988, between the Company and Norwest Bank Minnesota, N.A. (incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended November 27, 2011). |
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| 10.18*10.17* | | Form of Performance Share Unit Award Agreement (incorporated herein by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 27, 2018). |
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| 10.19*10.18* | | Form of Stock Option Agreement (incorporated herein by reference to Exhibit 10.19 to the Company’s Annual Report on Form10-K for the fiscal year ended May 27, 2018). |
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| 10.20*10.19* | | Form of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.20 to the Company’s Annual Report on Form10-K for the fiscal year ended May 27, 2018). |
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| 10.21*10.20* | | Deferred Compensation Plan forNon-Employee Directors (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended November 26, 2017). |
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| 10.22*10.21* | | 2017 Stock Compensation Plan (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended November 26, 2017). |
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| 10.23*10.22* | | Supplemental Retirement Plan I (Grandfathered) (incorporated herein by reference to Exhibit 10.2310.2 to the Company’s AnnualQuarterly Report on Form10-K 10-Q for the fiscal yearquarter ended May 27, 2018)February 28, 2021). |
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| 10.24*10.23* | | Supplemental Retirement Plan I (incorporated herein by reference to Exhibit 10.2410.6 to the Company’s AnnualQuarterly Report on Form10-K 10-Q for the fiscal yearquarter ended May 27, 2018)February 28, 2021). |
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| 10.2510.24 | | Agreements, dated November 29, 1989, by and between the Company and Nestle S.A. (incorporated herein by reference to Exhibit 10.15 to the Company’s Annual Report on Form10-K for the fiscal year ended May 28, 2000). |
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| 10.2610.25 | | Protocol of Cereal Partners Worldwide, dated November 21, 1989, and Addendum No. 1 to Protocol, dated February 9, 1990, between the Company and Nestle S.A. (incorporated herein by reference to Exhibit 10.16 to the Company’s Annual Report on Form10-K for the fiscal year ended May 27, 2001). |
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| 10.2710.26 | | Addendum No. 2 to the Protocol of Cereal Partners Worldwide, dated March 16, 1993, between the Company and Nestle S.A. (incorporated herein by reference to Exhibit 10.18 to the Company’s Annual Report on Form10-K for the fiscal year ended May 30, 2004). |
| | | Exhibit No.
| | Description
| 10.27 | | 10.28 | | Addendum No. 3 to the Protocol of Cereal Partners Worldwide, effective as of March 15, 1993, between the Company and Nestle S.A. (incorporated herein by reference to Exhibit 10.2 to the Company’s Annual Report on Form10-K for the fiscal year ended May 28, 2000). |
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| 10.29+10.28+ | | Addendum No. 4, effective as August 1, 1998, and Addendum No. 5, effective as April 1, 2000, to the Protocol of Cereal Partners Worldwide between the Company and Nestle S.A. (incorporated herein by reference to Exhibit 10.26 to the Company’s Annual Report on Form10-K for the fiscal year ended May 31, 2009). |
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| 10.3010.29 | | Addendum No. 10 to the Protocol of Cereal Partners Worldwide, effective January 1, 2010, among the Company, Nestle S.A., and CPW S.A. (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended February 28, 2010). |
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10.31+10.30+ | | Addendum No. 11 to the Protocol of Cereal Partners Worldwide, effective July 17, 2012, among the Company, Nestle S.A., and CPW S.A. (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form10-Q for the fiscal quarter ended August 26, 2012). |
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| 10.3210.31 | | Five-Year Credit Agreement, dated as of May 18, 2016,April 12, 2021, among the Company, the several financial institutions from time to time party to the agreement, and Bank of America, N.A., as Administrative Agent (incorporated herein by reference to Exhibit 10.110 to the Company’s Current Report on Form8-K filed May 18, 2016)April 15, 2021). |
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| 10.3321.1 | | Extension Agreement, dated April 26, 2017, among the Company, the several financial institutions from time to time party to the agreement, and Bank of America, N.A., as Administrative Agent (incorporated herein by reference to Exhibit 10.1 the Company’s Current Report on Form8-K filed May 1, 2017). | | | 10.34 | | Amendment No. 1 to Credit Agreement, dated as of May 31, 2018, among the Company, the several financial institutions from time to time party to the agreement, and Bank of America, N.A., as Administrative Agent (incorporated herein by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 27, 2018). | | | 21.1 | | Subsidiaries of the Company. |
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| 23.1 | | Consent of Independent Registered Public Accounting Firm. |
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| 31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 32.1 | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 32.2 | | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | Exhibit No.
| | Description
| 101 | | 101 | | The following materials from the Company’s Annual Report on Form10-K for the fiscal year ended May 27, 201831, 2020 formatted in eXtensibleInline Extensible Business Reporting Language: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Total Equity and Redeemable Interest; (v) the Consolidated Statements of Cash Flows; (vi) the Notes to Consolidated Financial Statements; and (vii) Schedule II – Valuation of Qualifying Accounts.
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*104 | Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15 of Form10-K.
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+ | Confidential information has been omitted from the exhibitCover Page, formatted in Inline Extensible Business Reporting Language and filed separately with the SEC pursuant to Rule24b-2 of the Securities Exchange Act of 1934.contained in Exhibit 101.
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_____________ *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 - Form10-K Summary
Not Applicable.
Signatures 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. | | | | Dated: June 27, 2019 | | By: | | /s/ Kofi A. Bruce | | | | | Name: Kofi A. Bruce | | | | | Title: Vice President, Controller |
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.
Signature | Title | | | Date | Signature
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| Title
| | Date
| | | | /s/ Jeffrey L Harmening Jeffrey L. Harmening | | Chairman of the Board, Chief Executive Officer, and Director (Principal (Principal Executive Officer) | | June 27, 2019 | | | 30, 2021 | /s/ Donal L. Mulligan
Donal L. Mulligan
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| Chief Financial Officer
(Principal Financial Officer)
| | June 27, 2019 | | | | /s/ Kofi A. Bruce Kofi A. Bruce | Chief Financial Officer (Principal Financial Officer) | June 30, 2021 |
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| /s/ Mark A. Pallot Mark A. Pallot | Vice President, ControllerChief Accounting Officer (Principal Accounting Officer) | | June 27, 2019 | | | 30, 2021 | /s/ Alicia S. Boler Davis
Alicia S. Boler Davis
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| Director | | June 27, 2019 | | |
| /s/ R. Kerry Clark R. Kerry Clark | Director | Director | | June 27, 2019 | | | 30, 2021 |
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| /s/ David M. Cordani David M. Cordani | Director | Director | | June 27, 2019 | | | 30, 2021 |
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| /s/ Roger W. Ferguson Jr.Jr. Roger W. Ferguson Jr. | Director | Director | | June 27, 2019 | | | 30, 2021 |
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| /s/ Maria G. Henry Maria G. Henry | Director | Director | | June 27, 2019 | | | 30, 2021 | /s/ Heidi G. Miller
Heidi G. Miller
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| Director | | June 27, 2019 | | |
| /s/ Jo Ann Jenkins Jo Ann Jenkins | Director | June 30, 2021 |
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| /s/ Elizabeth C. Lempres Elizabeth C. Lempres | Director | June 30, 2021 |
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| /s/ Diane L. Neal Diane L. Neal | Director | Director | | June 27, 2019 | | | 30, 2021 |
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| /s/ Steve Odland Steve Odland | Director | Director | | June 27, 2019 | | | 30, 2021 |
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| /s/ Maria A. Sastre Maria A. Sastre | Director | Director | | June 27, 2019 | | | 30, 2021 |
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| /s/ Eric D. Sprunk Eric D. Sprunk | Director | Director | | June 27, 2019 | | | 30, 2021 |
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| /s/ Jorge A. Uribe Jorge A. Uribe | Director | DirectorJune 30, 2021 |
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| June 27, 2019
|
General Mills, Inc. and Subsidiaries
Schedule II - Valuation of Qualifying Accounts
| | | | | | | | | | | | | | | Fiscal Year | | In Millions | | 2019 | | | 2018 | | | 2017 | | Allowance for doubtful accounts: | | | | | | | | | | | | | Balance at beginning of year | | $ | 28.4 | | | $ | 24.3 | | | $ | 29.6 | | Additions charged to expense | | | 23.9 | | | | 26.7 | | | | 16.6 | | Bad debt write-offs | | | (22.7 | ) | | | (26.9 | ) | | | (23.2) | | Other adjustments and reclassifications | | | (0.8 | ) | | | 4.3 | | | | 1.3 | | Balance at end of year | | $ | 28.8 | | | $ | 28.4 | | | $ | 24.3 | | Valuation allowance for deferred tax assets: | | | | | | | | | | | | | Balance at beginning of year | | $ | 176.0 | | | $ | 231.8 | | | $ | 227.0 | | Additions charged to expense | | | (5.2 | ) | | | 2.4 | | | | 5.2 | | Adjustments due to acquisitions, translation of amounts, and other | | | 42.9 | | | | (58.2 | ) | | | (0.4) | | Balance at end of year | | $ | 213.7 | | | $ | 176.0 | | | $ | 231.8 | | Reserve for restructuring and other exit charges: | | | | | | | | | | | | | Balance at beginning of year | | $ | 66.8 | | | $ | 85.0 | | | $ | 76.6 | | Additions charged to expense, including translation amounts | | | 11.6 | | | | 40.3 | | | | 104.0 | | Net amounts utilized for restructuring activities | | | (41.9 | ) | | | (58.5 | ) | | | (95.6) | | Balance at end of year | | $ | 36.5 | | | $ | 66.8 | | | $ | 85.0 | | Reserve for LIFO valuation: | | | | | | | | | | | | | Balance at beginning of year | | $ | 213.2 | | | $ | 209.1 | | | $ | 219.3 | | Increase (decrease) | | | 0.3 | | | | 4.1 | | | | (10.2) | | Balance at end of year | | $ | 213.5 | | | $ | 213.2 | | | $ | 209.1 | |
118100
General Mills, Inc. and Subsidiaries | | | | | | | Schedule II - Valuation of Qualifying Accounts | | | | | | | | | | | | | | | | Fiscal Year | In Millions | | 2021 | | 2020 | | 2019 | Allowance for doubtful accounts: | | | | | | | Balance at beginning of year | $ | 33.2 | $ | 28.8 | $ | 28.4 | Additions charged to expense | | 25.7 | | 25.9 | | 23.9 | Bad debt write-offs | | (29.9) | | (22.9) | | (22.7) | Other adjustments and reclassifications | | 7.0 | | 1.4 | | (0.8) | Balance at end of year | $ | 36.0 | $ | 33.2 | $ | 28.8 | Valuation allowance for deferred tax assets: | | | | | | | Balance at beginning of year | $ | 214.2 | $ | 213.7 | $ | 176.0 | Additions charged to expense | | 9.1 | | 4.2 | | (5.2) | Adjustments due to acquisitions, translation of amounts, and other | | 5.9 | | (3.7) | | 42.9 | Balance at end of year | $ | 229.2 | $ | 214.2 | $ | 213.7 | Reserve for restructuring and other exit charges: | | | | | | | Balance at beginning of year | $ | 17.8 | $ | 36.5 | $ | 66.8 | Additions charged to expense, including translation amounts | | 143.9 | | (2.5) | | 11.6 | Net amounts utilized for restructuring activities | | (12.9) | | (16.2) | | (41.9) | Balance at end of year | $ | 148.8 | $ | 17.8 | $ | 36.5 | Reserve for LIFO valuation: | | | | | | | Balance at beginning of year | $ | 202.1 | $ | 213.5 | $ | 213.2 | Increase (decrease) | | 7.4 | | (11.4) | | 0.3 | Balance at end of year | $ | 209.5 | $ | 202.1 | $ | 213.5 |
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