UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED November 26, 2017
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROMTO
Commission file number:001-01185
GENERAL MILLS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 41-0274440 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) |
Identification No.) | |
Number One General Mills Boulevard | ||
Minneapolis, Minnesota | 55426 | |
(Address of principal executive offices) | (Zip Code) |
(763)764-7600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” in RuleRule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of Common Stock outstanding as of March 14,December 11, 2017: 576,135,402569,043,789 (excluding 178,477,926185,569,539 shares held in the treasury).
General Mills, Inc.
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Consolidated Balance Sheets as of | 5 | ||||||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | ||||||
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Item 1. | Financial Statements |
Consolidated Statements of Earnings
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions, Except per Share Data)
Quarter Ended | Nine-Month Period Ended | Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||||||||
Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | |||||||||||||||||||||||||
Net sales | $ | 3,793.2 | $ | 4,002.4 | $ | 11,813.2 | $ | 12,635.2 | $ | 4,198.7 | $ | 4,112.1 | $ | 7,967.9 | $ | 8,020.0 | ||||||||||||||||
Cost of sales | 2,485.5 | 2,644.9 | 7,569.1 | 8,182.5 | 2,755.7 | 2,592.6 | 5,214.8 | 5,083.6 | ||||||||||||||||||||||||
Selling, general, and administrative expenses | 687.6 | 755.8 | 2,107.9 | 2,339.7 | 711.6 | 708.1 | 1,390.7 | 1,420.3 | ||||||||||||||||||||||||
Divestitures loss (gain) | — | (1.5 | ) | 13.5 | (200.6 | ) | ||||||||||||||||||||||||||
Divestiture loss | — | 13.5 | — | 13.5 | ||||||||||||||||||||||||||||
Restructuring, impairment, and other exit costs | 77.6 | 16.9 | 165.5 | 138.3 | 1.6 | 29.0 | 6.8 | 87.9 | ||||||||||||||||||||||||
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Operating profit | 542.5 | 586.3 | 1,957.2 | 2,175.3 | 729.8 | 768.9 | 1,355.6 | 1,414.7 | ||||||||||||||||||||||||
Interest, net | 76.4 | 77.2 | 225.8 | 226.3 | 74.9 | 75.5 | 147.3 | 149.4 | ||||||||||||||||||||||||
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Earnings before income taxes andafter-tax earnings from joint ventures | 466.1 | 509.1 | 1,731.4 | 1,949.0 | 654.9 | 693.4 | 1,208.3 | 1,265.3 | ||||||||||||||||||||||||
Income taxes | 107.0 | 157.6 | 511.0 | 667.7 | 234.9 | 227.4 | 403.4 | 404.0 | ||||||||||||||||||||||||
After-tax earnings from joint ventures | 11.1 | 16.2 | 65.1 | 65.1 | 23.8 | 29.8 | 47.5 | 54.0 | ||||||||||||||||||||||||
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Net earnings, including earnings attributable to redeemable and noncontrolling interests | 370.2 | 367.7 | 1,285.5 | 1,346.4 | 443.8 | 495.8 | 852.4 | 915.3 | ||||||||||||||||||||||||
Net earnings attributable to redeemable and noncontrolling interests | 12.4 | 6.0 | 36.9 | 28.6 | 13.3 | 14.0 | 17.2 | 24.5 | ||||||||||||||||||||||||
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Net earnings attributable to General Mills | $ | 357.8 | $ | 361.7 | $ | 1,248.6 | $ | 1,317.8 | $ | 430.5 | $ | 481.8 | $ | 835.2 | $ | 890.8 | ||||||||||||||||
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Earnings per share - basic | $ | 0.62 | $ | 0.61 | $ | 2.12 | $ | 2.20 | $ | 0.75 | $ | 0.82 | $ | 1.46 | $ | 1.50 | ||||||||||||||||
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Earnings per share - diluted | $ | 0.61 | $ | 0.59 | $ | 2.08 | $ | 2.15 | $ | 0.74 | $ | 0.80 | $ | 1.43 | $ | 1.47 | ||||||||||||||||
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Dividends per share | $ | 0.48 | $ | 0.44 | $ | 1.44 | $ | 1.32 | $ | 0.49 | $ | 0.48 | $ | 0.98 | $ | 0.96 | ||||||||||||||||
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See accompanying notes to consolidated financial statements.
3
Consolidated Statements of Comprehensive Income
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions)
Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||
Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||||||
Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | |||||||||||||||||||||||||||||
Net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 370.2 | $ | 367.7 | $ | 1,285.5 | $ | 1,346.4 | $ | 443.8 | $ | 495.8 | $ | 852.4 | $ | 915.3 | ||||||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||||||||
Foreign currency translation | 113.7 | (39.9 | ) | 88.4 | (252.4 | ) | (42.0 | ) | (105.7 | ) | 19.5 | (25.3 | ) | |||||||||||||||||||
Other fair value changes: | ||||||||||||||||||||||||||||||||
Securities | 0.5 | (0.2 | ) | 0.8 | (0.2 | ) | 0.5 | (0.1 | ) | 0.8 | 0.3 | |||||||||||||||||||||
Hedge derivatives | (4.9 | ) | 19.0 | 42.4 | 29.4 | (0.1 | ) | 32.1 | (8.9 | ) | 47.3 | |||||||||||||||||||||
Reclassification to earnings: | ||||||||||||||||||||||||||||||||
Hedge derivatives | (8.7 | ) | (3.7 | ) | (19.3 | ) | (3.3 | ) | 0.8 | (7.8 | ) | 0.6 | (10.6 | ) | ||||||||||||||||||
Amortization of losses and prior service costs | 29.9 | 31.0 | 92.3 | 97.8 | 27.9 | 31.8 | 55.7 | 62.4 | ||||||||||||||||||||||||
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Other comprehensive income (loss), net of tax | 130.5 | 6.2 | 204.6 | (128.7 | ) | (12.9 | ) | (49.7 | ) | 67.7 | 74.1 | |||||||||||||||||||||
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Total comprehensive income | 500.7 | 373.9 | 1,490.1 | 1,217.7 | 430.9 | 446.1 | 920.1 | 989.4 | ||||||||||||||||||||||||
Comprehensive income (loss) attributable to redeemable and noncontrolling interests | 16.4 | 20.1 | (20.3 | ) | 4.1 | 12.8 | (43.5 | ) | 84.8 | (36.7 | ) | |||||||||||||||||||||
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Comprehensive income attributable to General Mills | $ | 484.3 | $ | 353.8 | $ | 1,510.4 | $ | 1,213.6 | $ | 418.1 | $ | 489.6 | $ | 835.3 | $ | 1,026.1 | ||||||||||||||||
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See accompanying notes to consolidated financial statements.
4
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except Par Value)
Feb. 26, 2017 | May 29, 2016 | Nov. 26, 2017 | May 28, 2017 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 899.1 | $ | 763.7 | $ | 962.1 | $ | 766.1 | ||||||||
Receivables | 1,427.5 | 1,360.8 | 1,510.5 | 1,430.1 | ||||||||||||
Inventories | 1,461.0 | 1,413.7 | 1,516.5 | 1,483.6 | ||||||||||||
Prepaid expenses and other current assets | 340.4 | 399.0 | 345.0 | 381.6 | ||||||||||||
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Total current assets | 4,128.0 | 3,937.2 | 4,334.1 | 4,061.4 | ||||||||||||
Land, buildings, and equipment | 3,575.2 | 3,743.6 | 3,631.4 | 3,687.7 | ||||||||||||
Goodwill | 8,705.8 | 8,741.2 | 8,828.3 | 8,747.2 | ||||||||||||
Other intangible assets | 4,499.7 | 4,538.6 | 4,581.8 | 4,530.4 | ||||||||||||
Other assets | 761.6 | 751.7 | 815.9 | 785.9 | ||||||||||||
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Total assets | $ | 21,670.3 | $ | 21,712.3 | $ | 22,191.5 | $ | 21,812.6 | ||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 1,855.3 | $ | 2,046.5 | $ | 2,467.0 | $ | 2,119.8 | ||||||||
Current portion of long-term debt | 604.7 | 1,103.4 | 200.5 | 604.7 | ||||||||||||
Notes payable | 1,942.0 | 269.8 | 1,298.0 | 1,234.1 | ||||||||||||
Other current liabilities | 1,341.5 | 1,595.0 | 1,384.0 | 1,372.2 | ||||||||||||
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Total current liabilities | 5,743.5 | 5,014.7 | 5,349.5 | 5,330.8 | ||||||||||||
Long-term debt | 7,176.4 | 7,057.7 | 8,228.3 | 7,642.9 | ||||||||||||
Deferred income taxes | 1,547.7 | 1,399.6 | 1,790.9 | 1,719.4 | ||||||||||||
Other liabilities | 1,930.0 | 2,087.6 | 1,439.7 | 1,523.1 | ||||||||||||
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Total liabilities | 16,397.6 | 15,559.6 | 16,808.4 | 16,216.2 | ||||||||||||
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Redeemable interest | 869.2 | 845.6 | 793.4 | 910.9 | ||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock, 754.6 shares issued, $0.10 par value | 75.5 | 75.5 | 75.5 | 75.5 | ||||||||||||
Additionalpaid-in capital | 1,129.8 | 1,177.0 | 1,243.3 | 1,120.9 | ||||||||||||
Retained earnings | 13,008.8 | 12,616.5 | 13,408.9 | 13,138.9 | ||||||||||||
Common stock in treasury, at cost, shares of 178.5 and 157.8 | (7,800.3 | ) | (6,326.6 | ) | ||||||||||||
Common stock in treasury, at cost, shares of 186.0 and 177.7 | (8,252.6 | ) | (7,762.9 | ) | ||||||||||||
Accumulated other comprehensive loss | (2,350.4 | ) | (2,612.2 | ) | (2,244.4 | ) | (2,244.5 | ) | ||||||||
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Total stockholders’ equity | 4,063.4 | 4,930.2 | 4,230.7 | 4,327.9 | ||||||||||||
Noncontrolling interests | 340.1 | 376.9 | 359.0 | 357.6 | ||||||||||||
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Total equity | 4,403.5 | 5,307.1 | 4,589.7 | 4,685.5 | ||||||||||||
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Total liabilities and equity | $ | 21,670.3 | $ | 21,712.3 | $ | 22,191.5 | $ | 21,812.6 | ||||||||
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See accompanying notes to consolidated financial statements.
5
Consolidated Statements of Total Equity and Redeemable Interest
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions, Except per Share Data)
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$.10 Par Value Common Stock | $.10 Par Value Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(One Billion Shares Authorized) | (One Billion Shares Authorized) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issued | Treasury | Issued | Treasury | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Par Amount | Additional Paid-In Capital | Shares | Amount | Retained Earnings | Accumulated Other | Non- controlling | Total Equity | Redeemable Interest | Shares | Par Amount | Additional Paid-In Capital | Shares | Amount | Retained Earnings | Accumulated Other | Non- controlling | Total Equity | Redeemable Interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of May 31, 2015 | 754.6 | $ | 75.5 | $ | 1,296.7 | (155.9 | ) | $ | (6,055.6 | ) | $ | 11,990.8 | $ | (2,310.7 | ) | $ | 396.0 | $ | 5,392.7 | $ | 778.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | 1,697.4 | (301.5 | ) | 11.2 | 1,407.1 | 30.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($1.78 per share) | (1,071.7 | ) | (1,071.7 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | (10.7 | ) | (606.7 | ) | (606.7 | ) | (25.4 | ) | (1,651.5 | ) | (1,651.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation plans (includes income tax benefits of $94.1) | (46.3 | ) | 8.8 | 335.7 | 289.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation plans (includes income tax benefits of $64.1) | 3.6 | 5.5 | 215.2 | 218.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unearned compensation related to restricted stock unit awards | (63.3 | ) | (63.3 | ) | (78.5 | ) | (78.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earned compensation | 84.8 | 84.8 | 94.9 | 94.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase in redemption value of redeemable interest | (91.5 | ) | (91.5 | ) | 91.5 | (75.9 | ) | (75.9 | ) | 75.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of interest in subsidiary | (3.4 | ) | (1.1 | ) | (4.5 | ) | (0.2 | ) | 0.1 | (0.1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling and redeemable interest holders | (29.2 | ) | (29.2 | ) | (55.1 | ) | (33.2 | ) | (33.2 | ) | (27.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 (loss) | 1,248.6 | 261.8 | (5.0 | ) | 1,505.4 | (15.3 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($1.44 per share) | (856.3 | ) | (856.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | 835.2 | 0.1 | 28.1 | 863.4 | 56.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.98 per share) | (565.2 | ) | (565.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares purchased | (25.4 | ) | (1,650.9 | ) | (1,650.9 | ) | (10.9 | ) | (600.5 | ) | (600.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation plans (includes income tax benefits of $65.1) | 20.9 | 4.7 | 177.2 | 198.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation plans (includes income tax benefits of $20.2) | (20.6 | ) | 2.6 | 110.8 | 90.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unearned compensation related to restricted stock unit awards | (77.9 | ) | (77.9 | ) | (61.2 | ) | (61.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earned compensation | 76.4 | 76.4 | 48.6 | 48.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase in redemption value of redeemable interest | (66.6 | ) | (66.6 | ) | 66.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Decrease in redemption value of redeemable interest | 155.6 | 155.6 | (155.6 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling and redeemable interest holders | (31.8 | ) | (31.8 | ) | (27.7 | ) | (26.7 | ) | (26.7 | ) | (18.6 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of Feb. 26, 2017 | 754.6 | $ | 75.5 | $ | 1,129.8 | (178.5 | ) | $ | (7,800.3 | ) | $ | 13,008.8 | $ | (2,350.4 | ) | $ | 340.1 | $ | 4,403.5 | $ | 869.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of Nov. 26, 2017 | 754.6 | $ | 75.5 | $ | 1,243.3 | (186.0 | ) | $ | (8,252.6 | ) | $ | 13,408.9 | $ | (2,244.4 | ) | $ | 359.0 | $ | 4,589.7 | $ | 793.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
6
Consolidated Statements of Cash Flows
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions)
Nine-Month Period Ended | Six-Month Period Ended | |||||||||||||||
Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | |||||||||||||
Cash Flows - Operating Activities | ||||||||||||||||
Net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 1,285.5 | $ | 1,346.4 | $ | 852.4 | $ | 915.3 | ||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 448.3 | 441.2 | 290.8 | 301.1 | ||||||||||||
After-tax earnings from joint ventures | (65.1 | ) | (65.1 | ) | (47.5 | ) | (54.0 | ) | ||||||||
Distributions of earnings from joint ventures | 43.7 | 38.6 | 45.1 | 31.9 | ||||||||||||
Stock-based compensation | 76.4 | 71.7 | 48.2 | 56.2 | ||||||||||||
Deferred income taxes | 140.1 | 37.7 | 70.2 | 94.6 | ||||||||||||
Tax benefit on exercised options | (65.1 | ) | (57.2 | ) | ||||||||||||
Pension and other postretirement benefit plan contributions | (34.0 | ) | (35.2 | ) | (12.6 | ) | (22.6 | ) | ||||||||
Pension and other postretirement benefit plan costs | 26.9 | 88.2 | 2.4 | 17.9 | ||||||||||||
Divestitures loss (gain) | 13.5 | (200.6 | ) | |||||||||||||
Divestiture loss | — | 13.5 | ||||||||||||||
Restructuring, impairment, and other exit costs | 141.1 | 83.0 | (7.4 | ) | 71.0 | |||||||||||
Changes in current assets and liabilities | (404.0 | ) | 206.0 | 362.3 | (340.9 | ) | ||||||||||
Other, net | (48.6 | ) | (92.2 | ) | (37.1 | ) | (5.3 | ) | ||||||||
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Net cash provided by operating activities | 1,558.7 | 1,862.5 | 1,566.8 | 1,078.7 | ||||||||||||
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Cash Flows - Investing Activities | ||||||||||||||||
Purchases of land, buildings, and equipment | (475.2 | ) | (477.6 | ) | (260.0 | ) | (318.3 | ) | ||||||||
Acquisitions, net of cash acquired | — | (84.0 | ) | |||||||||||||
Investments in affiliates, net | 4.8 | 63.7 | (7.4 | ) | (7.7 | ) | ||||||||||
Proceeds from disposal of land, buildings, and equipment | 1.2 | 4.5 | 0.6 | 0.4 | ||||||||||||
Proceeds from divestitures | 17.5 | 825.8 | ||||||||||||||
Proceeds from divestiture | — | 17.5 | ||||||||||||||
Exchangeable note | 13.0 | 19.5 | — | 13.0 | ||||||||||||
Other, net | 14.7 | (16.8 | ) | (3.9 | ) | 15.1 | ||||||||||
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Net cash (used) provided by investing activities | (424.0 | ) | 335.1 | |||||||||||||
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Net cash used by investing activities | (270.7 | ) | (280.0 | ) | ||||||||||||
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Cash Flows - Financing Activities | ||||||||||||||||
Change in notes payable | 1,681.3 | 54.8 | 53.1 | 1,164.5 | ||||||||||||
Issuance of long-term debt | 750.0 | 542.9 | 500.0 | — | ||||||||||||
Payment of long-term debt | (1,003.0 | ) | (1,000.3 | ) | (500.1 | ) | (0.1 | ) | ||||||||
Proceeds from common stock issued on exercised options | 90.5 | 103.0 | 50.6 | 77.0 | ||||||||||||
Tax benefit on exercised options | 65.1 | 57.2 | ||||||||||||||
Purchases of common stock for treasury | (1,650.9 | ) | (601.8 | ) | (600.5 | ) | (1,349.9 | ) | ||||||||
Dividends paid | (856.3 | ) | (794.6 | ) | (565.2 | ) | (575.5 | ) | ||||||||
Distributions to noncontrolling and redeemable interest holders | (59.5 | ) | (81.7 | ) | (45.3 | ) | (4.6 | ) | ||||||||
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Other, net | (23.6 | ) | (31.4 | ) | ||||||||||||
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Net cash used by financing activities | (982.8 | ) | (1,720.5 | ) | (1,131.0 | ) | (720.0 | ) | ||||||||
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Effect of exchange rate changes on cash and cash equivalents | (16.5 | ) | (28.6 | ) | 30.9 | (32.7 | ) | |||||||||
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Increase in cash and cash equivalents | 135.4 | 448.5 | 196.0 | 46.0 | ||||||||||||
Cash and cash equivalents - beginning of year | 763.7 | 334.2 | 766.1 | 763.7 | ||||||||||||
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Cash and cash equivalents - end of period | $ | 899.1 | $ | 782.7 | $ | 962.1 | $ | 809.7 | ||||||||
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Cash Flow from changes in current assets and liabilities: | ||||||||||||||||
Receivables | $ | (75.1 | ) | $ | (48.7 | ) | $ | (53.9 | ) | $ | (45.3 | ) | ||||
Inventories | (42.1 | ) | (89.3 | ) | (15.6 | ) | (120.7 | ) | ||||||||
Prepaid expenses and other current assets | 53.3 | (2.6 | ) | 42.3 | (2.3 | ) | ||||||||||
Accounts payable | (100.4 | ) | 75.9 | 377.0 | (19.9 | ) | ||||||||||
Other current liabilities | (239.7 | ) | 270.7 | 12.5 | (152.7 | ) | ||||||||||
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Changes in current assets and liabilities | $ | (404.0 | ) | $ | 206.0 | $ | 362.3 | $ | (340.9 | ) | ||||||
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See accompanying notes to consolidated financial statements.
7
GENERAL MILLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Background
The accompanying Consolidated Financial Statements of General Mills, Inc. (we, us, our, General Mills, or the Company) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations for reporting on Form10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature, including the elimination of all intercompany transactions and any noncontrolling and redeemable interests’ share of those transactions. Operating results for the quarter ended FebruaryNovember 26, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending May 28, 2017.27, 2018.
These statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in our Annual Report on Form10-K for the fiscal year ended May 29, 2016.28, 2017. The accounting policies used in preparing these Consolidated Financial Statements are the same as those described in Note 2 to the Consolidated Financial Statements in that Form10-K.10-K with the exception of the new accounting requirements adopted in the first quarter of fiscal 2018 for stock-based payments and goodwill impairment testing. See Note 16 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information. Certain terms used throughout this report are defined in the “Glossary” section below.
In the second quarter of fiscal 2018, we recorded an adjustment related to a prior year which increased income tax expense and total liabilities by $42.2 million in our Consolidated Financial Statements. We determined the adjustment to be immaterial to our estimated Consolidated Statements of Earnings for the fiscal year ended May 27, 2018.
(2) DivestituresDivestiture
During the second quarter of fiscal 2017, we sold our Martel, Ohio manufacturing facility in our Convenience Stores & Foodservice segment and simultaneously entered into aco-packing arrangement with the purchaser. We received $17.5 million in cash, and recorded apre-tax loss of $13.5 million.
During the second quarter of fiscal 2016, we sold our North American Green Giant product lines for $822.7 million in cash, and we recorded apre-tax gain of $199.1 million. We received net cash proceeds of $788.0 million after transaction-related costs. After the divestiture, we retained a brand intangible asset on our Consolidated Balance Sheets of $30.1 million related to our continued use of theGreen Giant brand in certain markets outside of North America.
8
(3) Restructuring Initiatives
We are currently pursuing several multi-year restructuring initiatives designed to increase our efficiency and focus our business behind our key growth strategies. Charges related to these activities were as follows:
Quarter Ended Feb. 26, 2017 | Quarter Ended Feb. 28, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In Millions | Severance | Asset Write- offs | Accelerated Depreciation | Other | Total | Severance | Asset Write- offs | Accelerated Depreciation | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Global reorganization | $ | 67.4 | $ | — | $ | — | $ | 5.7 | $ | 73.1 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Closure of Melbourne, Australia plant | — | — | 5.6 | 0.1 | 5.7 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring of certain international product lines | 0.6 | 1.6 | — | 0.1 | 2.3 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Closure of Vineland, New Jersey plant | — | 0.4 | 7.1 | 0.2 | 7.7 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Project Compass | (1.4 | ) | — | — | — | (1.4 | ) | (0.9 | ) | — | — | 0.1 | (0.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Project Century | 0.2 | 1.7 | 3.4 | 1.8 | 7.1 | 7.4 | 10.4 | 17.0 | 9.1 | 43.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Project Catalyst | — | — | — | — | — | (8.9 | ) | — | — | — | (8.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Combination of certain operational facilities | (0.5 | ) | — | — | — | (0.5 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 66.3 | $ | 3.7 | $ | 16.1 | $ | 7.9 | $ | 94.0 | $ | (2.4 | ) | $ | 10.4 | $ | 17.0 | $ | 9.2 | $ | 34.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarter Ended | Quarter Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nine-Month Period Ended Feb. 26, 2017 | Nine-Month Period Ended Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In Millions | Severance | Asset Write- offs | Accelerated Depreciation | Other | Total | Severance | Asset Write- offs | Accelerated Depreciation | Other | Total | Severance | Asset offs | Accelerated Depreciation | Other | Total | Severance | Asset offs | Accelerated Depreciation | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Global reorganization | $ | 67.4 | $ | — | $ | — | $ | 5.7 | $ | 73.1 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 0.2 | $ | 0.5 | $ | — | $ | (0.1 | ) | $ | 0.6 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
Closure of Melbourne, Australia plant | 11.3 | — | 6.3 | 0.1 | 17.7 | — | — | — | — | — | — | — | 0.6 | 2.2 | 2.8 | 11.3 | — | 0.7 | — | 12.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring of certain international product lines | 7.0 | 37.4 | (0.3 | ) | 1.5 | 45.6 | — | — | — | — | — | — | — | — | — | — | 4.1 | 2.2 | (0.3 | ) | 0.9 | 6.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Closure of Vineland, New Jersey plant | 12.3 | 5.4 | 16.1 | 1.8 | 35.6 | — | — | — | — | — | (2.4 | ) | 8.8 | — | (7.7 | ) | (1.3 | ) | (0.1 | ) | — | 7.0 | 0.1 | 7.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Project Compass | (1.4 | ) | — | 0.2 | 0.8 | (0.4 | ) | 46.2 | — | — | 6.6 | 52.8 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Project Century | 0.7 | 9.8 | 18.0 | 8.7 | 37.2 | 35.5 | 22.9 | 59.6 | 37.1 | 155.1 | — | 4.8 | — | (4.7 | ) | 0.1 | 0.2 | 5.0 | 5.4 | 5.3 | 15.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Project Catalyst | — | — | — | — | — | (8.7 | ) | — | — | — | (8.7 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Combination of certain operational facilities | (0.5 | ) | — | — | — | (0.5 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 96.8 | $ | 52.6 | $ | 40.3 | $ | 18.6 | $ | 208.3 | $ | 73.0 | $ | 22.9 | $ | 59.6 | $ | 43.7 | $ | 199.2 | $ | (2.2 | ) | $ | 14.1 | $ | 0.6 | $ | (10.3 | ) | $ | 2.2 | $ | 15.5 | $ | 7.2 | $ | 12.8 | $ | 6.3 | $ | 41.8 | ||||||||||||||||||||||||||||||||||||||
Six-Month Period Ended | Six-Month Period Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nov. 26, 2017 | Nov. 27, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In Millions | Severance | Asset offs | Accelerated Depreciation | Other | Total | Severance | Asset Write- offs | Accelerated Depreciation | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Global reorganization | $ | 0.6 | $ | 0.6 | $ | — | $ | 0.2 | $ | 1.4 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Closure of Melbourne, Australia plant | 0.6 | — | 2.1 | 2.2 | 4.9 | 11.3 | — | 0.7 | — | 12.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring of certain international product lines | — | — | — | — | — | 6.4 | 35.8 | (0.3 | ) | 1.4 | 43.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Closure of Vineland, New Jersey plant | (2.2 | ) | 8.9 | 10.6 | (5.2 | ) | 12.1 | 12.3 | — | 14.0 | 1.6 | 27.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Project Compass | (0.2 | ) | — | — | — | (0.2 | ) | — | — | 0.2 | 0.8 | 1.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Project Century | 0.1 | 5.7 | — | (4.3 | ) | 1.5 | 0.5 | 8.1 | 14.6 | 6.9 | 30.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | (1.1 | ) | $ | 15.2 | $ | 12.7 | $ | (7.1 | ) | $ | 19.7 | $ | 30.5 | $ | 43.9 | $ | 29.2 | $ | 10.7 | $ | 114.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In the third quarter of fiscal 2017, we approved restructuring actions designed to better align our organizational structure with our strategic initiatives. In connection with these actions,This action will affect approximately 600 positions and we expect to eliminate approximately 400 to 600 positions. We expect to incur approximately $80$76 million of net expenses relating to these actions, all of which will be cash. We recorded $73.1$0.6 million of restructuring charges in the thirdsecond quarter of fiscal 2018 and $1.4 million in thesix-month period ended November 26, 2017 relating to these actions. We expect these actions to be completed by the end of fiscal 2018.
In the second quarter of fiscal 2017, we notified the employees and their representatives of our decision to close our pasta manufacturing facility in Melbourne, Australia in our Europe & Australia segment to improve our margin structure. This action will affect approximately 350 positions, and we expect to incur approximately $34 million of net expenses relating to this action, most of which approximately $3 million will benon-cash. cash. We recorded $5.7$2.8 million of restructuring charges in the thirdsecond quarter of fiscal 20172018 and $17.7$4.9 million in the nine-monthsix-month period ended FebruaryNovember 26, 2017 relating to this action. We recorded $12.0 million of restructuring charges in the second quarter of fiscal 2017 and $12.0 million in thesix-month period ended November 27, 2016. We expect these actionsthis action to be completed by the end of fiscal 2019.
In the first quarter of fiscal 2017, we announced a plan to restructure certain product lines in our Asia & Latin America segment. To eliminate excess capacity, we closed our snacks manufacturing facility in Marília, Brazil and ceased production operations for meals and snacks at our facility in São Bernardo do Campo, Brazil. We also ceased production of certain underperforming snack products at our facility in Nanjing, China. These and other actions will affect approximately 420 positions in our Brazilian operations and approximately 440 positions in our Greatergreater China operations. We expect to incur approximately $38$42 million of net expenses related to these actions, most of which approximately $4 million will be cash.non-cash. There have been no restructuring charges in fiscal 2018 relating to these actions. We recorded $2.3$6.9 million of restructuring charges in the thirdsecond quarter of fiscal 2017 and $45.6
9
$43.3 million in the nine-monthsix-month period ended February 26, 2017 relating to this action.November 27, 2016. We expect these actions to be completed by the end of fiscal 2018.2019.
In the first quarter of fiscal 2017, we approved a plan to close our Vineland, New Jersey facility to eliminate excess soup capacity in our North America Retail segment. This action will affect approximately 370affected 380 positions, and we expect to incur approximately $65 million of net expenses, of which approximately $18 million will be cash. We recorded $7.7 million of restructuring charges in the third quarter of fiscal 2017 and $35.6 million in the nine-month period ended February 26, 2017 relating to this action. We expect this action to be completed by the end of fiscal 2019.
In the first quarter of fiscal 2016, we approved Project Compass, a restructuring plan designed to enable our international operations to accelerate long-term growth through increased organizational effectiveness and reduced administrative expense. In connection with this project, we eliminated 749 positions. We incurred $54.3 million of net expenses, all of which was cash. In the third quarter of fiscal 2017, we reduced the estimate of charges related to this action by $1.4 million. We recorded $52.8 million of restructuring charges in the nine-month period ended February 28, 2016 related to this action. This action was completed in the third quarter of fiscal 2017.
Project Century (Century) began in fiscal 2015 and was a review of our manufacturing and distribution network to streamline operations and identify potential capacity reductions. As part of Century, in the second quarter of fiscal 2016, we notified the employees and their representatives of our decision to close the dough and dry mix manufacturing facility in our Europe & Australia segment supply chain located in Berwick, United Kingdom. This action affected 265 positions, and we incurred $32 million of net expenses related to this action, of which $12 million was cash. We recorded $1.2 million of restructuring charges in the nine-month period ended February 26, 2017 and $17.7 million in the nine-month period ended February 28, 2016 related to this action. This action was completed in fiscal 2017.
As part of Century, in the first quarter of fiscal 2016, we approved a restructuring plan to close our cereal and dry dinner manufacturing plant in West Chicago, Illinois in our North America Retail segment supply chain. This action will affect approximately 500 positions, and we expect to incur approximately $105$54 million of net expenses relating to this action, of which approximately $44$11 million will be cash. We recorded $6.7a net gain of $1.3 million primarily related to the sale of assets in the second quarter of fiscal 2018 and $12.1 million of restructuring charges in the thirdsix-month period ended November 26, 2017. We recorded $7.0 million of restructuring expenses in the second quarter of fiscal 2017 and $19.6$27.9 million in the nine-monthsix-month period ended February 26, 2017 relating to this action. We recorded $8.2 million in the third quarter of fiscal 2016 and $72.2 million in the nine-month period ended February 28, 2016 relating to this action.November 27, 2016. We expect this action to be completed by the end of fiscal 2018.
As part of Century, inDuring the first quarter of fiscal 2016, we approved a restructuring plan to close our snacks manufacturing facility in Joplin, Missouri in our North America Retail segment supply chain. This action affected approximately 120 positions, and we incurred $6.6 million of net expenses relating to this action, including $0.6 million in the third quarter of fiscal 2016 and $8.4 million in the nine-monthsix-month period ended February 28, 2016, of which less than $1 million was cash. This action was completed in fiscal 2016.
In addition, we recorded restructuring charges of $0.4 million in the third quarter of fiscal 2017, $17.4 million in the third quarter of fiscal 2016, $16.4 million in the nine-month period ended February 26, 2017, and $56.8 million in the nine-month period ended February 28, 2016 relating to other Century actions previously announced.
During the nine-month period ended FebruaryNovember 26, 2017, we paid $67.1$27.1 million in cash relating to restructuring initiatives.initiatives and $43.3 million in thesix-month period ended November 27, 2016.
In addition to restructuring charges, we recorded $11.5$4.2 million of project-related costs in cost of sales in the thirdsecond quarter of fiscal 2017, $10.12018 and $5.4 million in the third quarter of fiscal 2016, $36.4 million in the nine-monthsix-month period ended FebruaryNovember 26, 2017 and $39.4 million in the nine-month period ended February 28, 2016.2017. We paid $11.5$5.0 million in cash in the third quarter of fiscalsix-month period ended November 26, 2017 for project-related costs. We expect to incur approximately $17.1$8 million of project-related costs in future periods related to our restructuring initiatives.
Restructuring charges and project-related costs are recorded in our Consolidated Statements of Earnings as follows:
Quarter Ended | Nine-Month Period Ended | |||||||||||||||
In Millions | Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | ||||||||||||
Cost of sales | $ | 16.4 | $ | 17.3 | $ | 42.8 | $ | 60.9 | ||||||||
Restructuring, impairment, and other exit costs | 77.6 | 16.9 | 165.5 | 138.3 | ||||||||||||
Total restructuring charges | 94.0 | 34.2 | 208.3 | 199.2 | ||||||||||||
Project-related costs classified in cost of sales | $ | 11.5 | $ | 10.1 | $ | 36.4 | $ | 39.4 | ||||||||
10
Quarter Ended | Six-Month Period Ended | |||||||||||||||
In Millions | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||
Cost of sales | $ | 0.6 | $ | 12.8 | $ | 12.9 | $ | 26.4 | ||||||||
Restructuring, impairment, and other exit costs | 1.6 | 29.0 | 6.8 | 87.9 | ||||||||||||
Total restructuring charges | 2.2 | 41.8 | 19.7 | 114.3 | ||||||||||||
Project-related costs classified in cost of sales | $ | 4.2 | $ | 11.1 | $ | 5.4 | $ | 24.9 |
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 29, 2016 | $ | 73.6 | $ | 1.5 | $ | 1.5 | $ | 76.6 | ||||||||
Fiscal 2017 charges, including foreign currency translation | 97.4 | 0.9 | 8.3 | 106.6 | ||||||||||||
Utilized in fiscal 2017 | (54.5 | ) | (1.6 | ) | (6.5 | ) | (62.6 | ) | ||||||||
Reserve balance as of Feb. 26, 2017 | $ | 116.5 | $ | 0.8 | $ | 3.3 | $ | 120.6 | ||||||||
In Millions | Severance | Contract Termination | Other Exit Costs | Total | ||||||||||||
Reserve balance as of May 28, 2017 | $ | 81.8 | $ | 0.7 | $ | 2.5 | $ | 85.0 | ||||||||
Fiscal 2018 charges, including foreign currency translation | (2.0 | ) | 0.2 | 0.4 | (1.4 | ) | ||||||||||
Utilized in fiscal 2018 | (35.5 | ) | (0.7 | ) | (0.8 | ) | (37.0 | ) | ||||||||
Reserve balance as of Nov. 26, 2017 | $ | 44.3 | $ | 0.2 | $ | 2.1 | $ | 46.6 |
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, accelerated depreciation, 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.
(4) Goodwill and Other Intangible Assets
The components of goodwill and other intangible assets are as follows:
In Millions | Feb. 26, 2017 | May 29, 2016 | Nov. 26, 2017 | May 28, 2017 | ||||||||||||
Goodwill | $ | 8,705.8 | $ | 8,741.2 | $ | 8,828.3 | $ | 8,747.2 | ||||||||
Other intangible assets: | ||||||||||||||||
Intangible assets not subject to amortization: | ||||||||||||||||
Brands and other indefinite-lived intangibles | 4,143.7 | 4,147.5 | 4,203.4 | 4,161.1 | ||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||
Franchise agreements, customer relationships, and other finite-lived intangibles | 514.4 | 536.9 | 555.2 | 524.8 | ||||||||||||
Less accumulated amortization | (158.4 | ) | (145.8 | ) | (176.8 | ) | (155.5 | ) | ||||||||
Intangible assets subject to amortization, net | 356.0 | 391.1 | 378.4 | 369.3 | ||||||||||||
Other intangible assets | 4,499.7 | 4,538.6 | 4,581.8 | 4,530.4 | ||||||||||||
Total | $ | 13,205.5 | $ | 13,279.8 | $ | 13,410.1 | $ | 13,277.6 | ||||||||
Based on the carrying value of finite-lived intangible assets as of FebruaryNovember 26, 2017, annual amortization expense for each of the next five fiscal years is estimated to be approximately $27 million.
During the third quarter of fiscal 2017, we announced a new global organization structure to streamline our leadership, enhance global scale, and drive improved operational agility to maximize our growth capabilities. As a result of this global reorganization, we reassessed our operating segments as well as our reporting units. Under our new organization structure, our chief operating decision maker assesses performance and makes decisions about resources to be allocated to our segments at the North America Retail, Convenience Stores & Foodservice, Europe & Australia, and Asia & Latin America operating segment level. See Note 15 for additional information on our operating segments. Our reporting units were unchanged with the exception of combining our former U.S. Meals and U.S. Baking reporting units into a single reporting unit.
The changes in the carrying amount of goodwill during fiscal 20172018 were as follows:
In Millions | North America Retail | 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 | (0.6 | ) | — | (50.2 | ) | 37.9 | (20.2 | ) | (33.1 | ) | ||||||||||||||
Balance as of Feb. 26, 2017 | $ | 6,409.7 | $ | 918.8 | $ | 666.3 | $ | 325.0 | $ | 386.0 | $ | 8,705.8 | ||||||||||||
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In Millions | North America Retail | Convenience Stores & Foodservice | Europe & Australia | Asia & Latin America | Joint Ventures | Total | ||||||||||||||||||
Balance as of May 28, 2017 | $ | 6,406.5 | $ | 918.8 | $ | 700.8 | $ | 312.4 | $ | 408.7 | $ | 8,747.2 | ||||||||||||
Other activity, primarily foreign currency translation | 6.5 | — | 43.5 | 3.7 | 27.4 | 81.1 | ||||||||||||||||||
Balance as of Nov. 26, 2017 | $ | 6,413.0 | $ | 918.8 | $ | 744.3 | $ | 316.1 | $ | 436.1 | $ | 8,828.3 | ||||||||||||
The changes in the carrying amount of other intangible assets during fiscal 20172018 were as follows:
In Millions | Total | Total | ||||||
Balance as of May 29, 2016 | $ | 4,538.6 | ||||||
Balance as of May 28, 2017 | $ | 4,530.4 | ||||||
Other activity, primarily foreign currency translation | (38.9 | ) | 51.4 | |||||
Balance as of Feb. 26, 2017 | $ | 4,499.7 | ||||||
Balance as of Nov. 26, 2017 | $ | 4,581.8 | ||||||
Our annual goodwill and indefinite-lived intangible assetassets impairment test was performed on the first day of the second quarter of fiscal 20172018 and we determined there was no impairment of our goodwill intangible assets as their related fair values were substantially in excess of the carrying values, except for theYoki andProgresso brand intangible assets and the Latin America reporting unit. We did not consider the new organization structure to be a triggering event requiring a subsequent goodwill impairment test as our reporting units remain unchanged, with the exception of combining the former U.S. Meals and U.S. Baking reporting units.
Our indefinite-lived intangible asset test was performed on the first day of the second quarter of fiscal 2017. As of the assessment date, there was no impairment of any of our indefinite-lived intangible assets as their related fair values were substantially in excess of the carrying values, except for theImmaculate Baking brand intangible asset.
The excess fair value aboveas of the carrying valuefiscal 2018 test date of theYoki andProgresso brand intangible assets and the Latin America reporting unit and theImmaculate Baking brand intangible asset is as follows:
In Millions | Carrying Value | Excess Fair Value Above Carrying Value | Carrying Value of Intangible Asset | Excess Fair Value as of Fiscal 2018 Test Date | ||||||||||||
Yoki | $ | 138.2 | 1 | % | ||||||||||||
Progresso | 462.1 | 6 | % | |||||||||||||
Latin America | $ | 523.0 | 15 | % | $ | 272.0 | 21 | % | ||||||||
Immaculate Baking | $ | 12.0 | 17 | % | ||||||||||||
In addition, while having significant coverage as of our fiscal 20172018 assessment date, the ProgressoFood,ShouldTasteGood andGreenGiantandFood Should Taste Goodbrand intangible assets and the U.S. Yogurt reporting unit had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.
(5) Inventories
The components of inventories were as follows:
In Millions | Feb. 26, 2017 | May 29, 2016 | Nov. 26, 2017 | May 28, 2017 | ||||||||||||
Raw materials and packaging | $ | 369.3 | $ | 397.3 | $ | 400.7 | $ | 395.4 | ||||||||
Finished goods | 1,191.1 | 1,163.1 | 1,211.6 | 1,224.3 | ||||||||||||
Grain | 93.3 | 72.6 | 118.9 | 73.0 | ||||||||||||
Excess of FIFO over LIFO cost | (192.7 | ) | (219.3 | ) | (214.7 | ) | (209.1 | ) | ||||||||
Total | $ | 1,461.0 | $ | 1,413.7 | $ | 1,516.5 | $ | 1,483.6 | ||||||||
(6) Risk Management Activities
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),non-fat dry milk, 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 to our planned cost as possible.
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.
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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, certain 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 the resultingmark-to-market volatility, which remains in unallocated corporate items.
Unallocated corporate items for the quarters and nine-month periods ended FebruaryNovember 26, 2017 and February 28,November 27, 2016 included:
Quarter Ended | Nine-Month Period Ended | Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||||||||
In Millions | Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||||||||||||||
Net gain (loss) onmark-to-market valuation of certain commodity positions | $ | — | $ | (42.7 | ) | $ | (15.9 | ) | $ | (96.7 | ) | $ | (0.6 | ) | $ | 3.0 | $ | (8.4 | ) | $ | (15.9 | ) | ||||||||||
Net loss on commodity positions reclassified from unallocated corporate items to segment operating profit | 4.0 | 39.8 | 27.7 | 101.9 | 2.5 | 14.4 | 6.1 | 23.7 | ||||||||||||||||||||||||
Netmark-to-market revaluation of certain grain inventories | 4.2 | (4.4 | ) | 8.9 | (2.1 | ) | 2.6 | 11.7 | 8.6 | 4.7 | ||||||||||||||||||||||
Netmark-to-market valuation of certain commodity positions recognized in unallocated corporate items | $ | 8.2 | $ | (7.3 | ) | $ | 20.7 | $ | 3.1 | $ | 4.5 | $ | 29.1 | $ | 6.3 | $ | 12.5 | |||||||||||||||
As of FebruaryNovember 26, 2017, the net notional value of commodity derivatives was $279.1$96.9 million, of which $57.9$36.6 million related to energy inputs and $221.2$60.3 million related to agricultural inputs. These contracts relate to inputs that generally will be utilized within the next 12 months.
In advance of planned debt financing, in fiscal 2018, we entered into $500.0 million of treasury locks due October 15, 2017 with an average fixed rate of 1.8 percent. All of these treasury locks were cash settled for $3.7 million during the second quarter of fiscal 2018, concurrent with the issuance of our $500.0 million5-year fixed-rate notes.
In advance of planned debt financing, during the third quarter of fiscal 2016 and the first quarter of fiscal 2017, we entered into $400$400.0 million and $100$100.0 million, respectively, of treasury locks due February 15, 2017 with an average fixed rate of 2.0 percent. All of these treasury locks were cash settled for $17.2 million during the third quarter of fiscal 2017, concurrent with the issuance of our $750.0 million10-year fixed-rate notes.
As of February 26, 2017, the net notional value of foreign exchange derivatives was $871.0 million.
The fair values of the derivative positions used in our risk management activities and other assets recorded at fair value were not material as of FebruaryNovember 26, 2017, and were Level 1 or Level 2 assets and liabilities in the fair value hierarchy. We did not significantly change our valuation techniques from prior periods.
We offer certain suppliers access to a third party serviceservices that allowsallow them to view our scheduled payments online. The third party serviceservices also allowsallow 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 party,parties, or any financial institutions concerning this service.these services. All of our accounts payable remain as obligations to our suppliers as stated in our supplier agreements. As of FebruaryNovember 26, 2017, $563.0$873.5 million of our total accounts payable were payable to suppliers who utilize thisthese third party service.services.
(7) Debt
The components of notes payable were as follows:
In Millions | Feb. 26, 2017 | May 29, 2016 | Nov. 26, 2017 | May 28, 2017 | ||||||||||||
U.S. commercial paper | $ | 1,637.9 | $ | — | $ | 997.7 | $ | 954.7 | ||||||||
Financial institutions | 304.1 | 269.8 | 300.3 | 279.4 | ||||||||||||
Total | $ | 1,942.0 | $ | 269.8 | $ | 1,298.0 | $ | 1,234.1 | ||||||||
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 committed, uncommitted, and asset-backed credit lines that support our foreign operations.
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The following table details thefee-paid committed and uncommitted credit lines we had available as of FebruaryNovember 26, 2017:
In Billions | Facility Amount | Borrowed Amount | ||||||
Credit facility expiring: | ||||||||
May 2021 | $ | 2.7 | $ | — | ||||
June 2019 | 0.2 | 0.2 | ||||||
Total committed credit facilities | 2.9 | 0.2 | ||||||
Uncommitted credit facilities | 0.5 | 0.1 | ||||||
Total committed and uncommitted credit facilities | $ | 3.4 | $ | 0.3 | ||||
In fiscal 2016, we entered into a $2.7 billionfee-paid committed credit facility that is scheduled to expire in May 2021. Concurrent with the execution of this credit facility, we terminated our $1.7 billion and $1.0 billion credit facilities.
In Billions | Facility Amount | Borrowed Amount | ||||||
Credit facility expiring: | ||||||||
May 2022 | $ | 2.7 | $ | — | ||||
June 2019 | 0.2 | 0.1 | ||||||
Total committed credit facilities | 2.9 | 0.1 | ||||||
Uncommitted credit facilities | 0.5 | 0.2 | ||||||
Total committed and uncommitted credit facilities | $ | 3.4 | $ | 0.3 | ||||
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 FebruaryNovember 26, 2017.
Long-Term Debt
The fair values and carrying amounts of long-term debt, including the current portion, were $8,107.5$8,735.5 million and $7,781.1$8,428.8 million, respectively, as of FebruaryNovember 26, 2017. 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.
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 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, together with cash on hand, were used to repay $500.0 million of 1.4 percent fixed-rate notes.
In March 2017, subsequent to the end of our fiscal third quarter, we issued €300.0 million principal amount of floating-rate notes due March 20, 2019. Interest on the notes is payable quarterly in arrears. We may redeem theThe notes if certain tax laws change and we would be obligatedare not generally redeemable prior to pay additional amounts on the notes.maturity. These notes are senior unsecured obligations that include a change of control repurchase provision. The net proceeds were used to repay a portion of our outstanding commercial paper.
In February 2017, we repaid $1.0 billion of 5.7 percent fixed-rate notes.
In January 2017, we issued $750.0 million principal amount of 3.2 percent fixed-rate notes due February 10, 2027. 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 repay a portion of our maturing long-term debt.
In January 2016, we issued €500.0 million principal amount of floating-rate notes due January 15, 2020. Interest on the notes is payable quarterly in arrears. We may redeem the notes if certain tax laws change and we would be obligated to pay additional amounts on the notes. These notes are senior unsecured obligations that include a change of control repurchase provision. The net proceeds were used to repay a portion of our maturing long-term debt.
In January 2016, we repaid $250 million of 0.875 percent fixed-rate notes and $750 million of floating-rate notes.
Certain of our long-term debt agreements contain restrictive covenants. As of FebruaryNovember 26, 2017, we were in compliance with all of these covenants.
(8) Redeemable and Noncontrolling Interests
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 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 FebruaryNovember 26, 2017, the redemption value of the euro-denominated redeemable interest was $869.2$793.4 million.
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A subsidiary of Yoplait SAS has an exclusive milk supply agreement for its European operations with Sodiaal through July 1, 2021. Net purchases totaled $189.5$112.3 million for the nine-monthsix-month period ended FebruaryNovember 26, 2017 and $213.5$86.2 million for the nine-monthsix-month period ended February 28,November 27, 2016.
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 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 toYoplaitand related trademarks. Liberté Marques Sàrl earns a royalty stream through licensing agreements with certain Yoplait group companies for the rights toLibertéand related trademarks. These entities pay dividends annually based on their available cash as of their fiscal year end.
The third-party holder of the Class A Interests in our General Mills Cereals, LLC (GMC) consolidated subsidiary 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). The preferred return rate is adjusted every three years through a negotiated agreement with the Class A Interest holder or through a remarketing auction. On June 1, 2015, the floating preferred return rate on GMC’s Class A Interests was reset to the sum of three-month LIBOR plus 125 basis points.
Our noncontrolling interests contain restrictive covenants. As of FebruaryNovember 26, 2017, we were in compliance with all of these covenants.
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(9) Stockholders’ Equity
The following tables provide details of total comprehensive income:
Quarter Ended | Quarter Ended | |||||||||||||||||||||||||||||||||||||||
Feb. 26, 2017 | Feb. 28, 2016 | |||||||||||||||||||||||||||||||||||||||
General Mills | Noncontrolling Interests | Redeemable Interest | General Mills | Noncontrolling Interests | Redeemable Interest | |||||||||||||||||||||||||||||||||||
In Millions | Pretax | Tax | Net | Net | Net | Pretax | Tax | Net | Net | Net | ||||||||||||||||||||||||||||||
Net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 357.8 | $ | 2.9 | $ | 9.5 | $ | 361.7 | $ | 1.7 | $ | 4.3 | ||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | $ | 109.0 | $ | — | 109.0 | (0.5 | ) | 5.2 | $ | (50.4 | ) | $ | — | (50.4 | ) | 9.5 | 1.0 | |||||||||||||||||||||||
Other fair value changes: | ||||||||||||||||||||||||||||||||||||||||
Securities | 0.7 | (0.2 | ) | 0.5 | — | — | (0.3 | ) | 0.1 | (0.2 | ) | — | — | |||||||||||||||||||||||||||
Hedge derivatives | (6.2 | ) | 1.3 | (4.9 | ) | — | — | 15.7 | (0.2 | ) | 15.5 | — | 3.5 | |||||||||||||||||||||||||||
Reclassification to earnings: | ||||||||||||||||||||||||||||||||||||||||
Hedge derivatives (a) | (9.8 | ) | 1.8 | (8.0 | ) | — | (0.7 | ) | (4.7 | ) | 0.9 | (3.8 | ) | — | 0.1 | |||||||||||||||||||||||||
Amortization of losses and prior service costs (b) | 48.0 | (18.1 | ) | 29.9 | — | — | 49.7 | (18.7 | ) | 31.0 | — | — | ||||||||||||||||||||||||||||
Other comprehensive income (loss) | $ | 141.7 | $ | (15.2 | ) | 126.5 | (0.5 | ) | 4.5 | $ | 10.0 | $ | (17.9 | ) | (7.9 | ) | 9.5 | 4.6 | ||||||||||||||||||||||
Total comprehensive income | $ | 484.3 | $ | 2.4 | $ | 14.0 | $ | 353.8 | $ | 11.2 | $ | 8.9 | ||||||||||||||||||||||||||||
Quarter Ended | Quarter Ended | |||||||||||||||||||||||||||||||||||||||
Nov. 26, 2017 | Nov. 27, 2016 | |||||||||||||||||||||||||||||||||||||||
General Mills | Noncontrolling Interests | Redeemable Interest | General Mills | Noncontrolling Interests | Redeemable Interest | |||||||||||||||||||||||||||||||||||
In Millions | Pretax | Tax | Net | Net | Net | Pretax | Tax | Net | Net | Net | ||||||||||||||||||||||||||||||
Net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 430.5 | $ | 4.5 | $ | 8.8 | $ | 481.8 | $ | 6.0 | $ | 8.0 | ||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | $ | (43.3 | ) | $ | — | (43.3 | ) | 0.6 | 0.7 | $ | (49.6 | ) | $ | — | (49.6 | ) | (18.0 | ) | (38.1 | ) | ||||||||||||||||||||
Other fair value changes: | ||||||||||||||||||||||||||||||||||||||||
Securities | 0.9 | (0.4 | ) | 0.5 | — | — | (0.1 | ) | — | (0.1 | ) | — | — | |||||||||||||||||||||||||||
Hedge derivatives | 3.5 | (2.5 | ) | 1.0 | — | (1.1 | ) | 48.5 | (16.0 | ) | 32.5 | — | (0.4 | ) | ||||||||||||||||||||||||||
Reclassification to earnings: | ||||||||||||||||||||||||||||||||||||||||
Hedge derivatives (a) | 2.5 | (1.0 | ) | 1.5 | — | (0.7 | ) | (7.0 | ) | 0.2 | (6.8 | ) | — | (1.0 | ) | |||||||||||||||||||||||||
Amortization of losses and prior service costs (b) | 43.8 | (15.9 | ) | 27.9 | — | — | 51.4 | (19.6 | ) | 31.8 | — | — | ||||||||||||||||||||||||||||
Other comprehensive income (loss) | $ | 7.4 | $ | (19.8 | ) | (12.4 | ) | 0.6 | (1.1 | ) | $ | 43.2 | $ | (35.4 | ) | 7.8 | (18.0 | ) | (39.5 | ) | ||||||||||||||||||||
Total comprehensive income (loss) | $ | 418.1 | $ | 5.1 | $ | 7.7 | $ | 489.6 | $ | (12.0 | ) | $ | (31.5 | ) | ||||||||||||||||||||||||||
(a) | (Gain) loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and selling, general, and administrative (SG&A) expenses for foreign exchange contracts. |
(b) | Loss reclassified from AOCI into earnings is reported in SG&A expenses. |
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Nine-Month Period Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||||||||||
Feb. 26, 2017 | Feb. 28, 2016 | |||||||||||||||||||||||||||||||||||||||
General Mills | Noncontrolling Interests | Redeemable Interest | General Mills | Noncontrolling Interests | Redeemable Interest | |||||||||||||||||||||||||||||||||||
In Millions | Pretax | Tax | Net | Net | Net | Pretax | Tax | Net | Net | Net | ||||||||||||||||||||||||||||||
Net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 1,248.6 | $ | 10.7 | $ | 26.2 | $ | 1,317.8 | $ | 8.2 | $ | 20.4 | ||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | $ | 146.0 | $ | — | 146.0 | (15.7 | ) | (41.9 | ) | $ | (223.1 | ) | $ | — | (223.1 | ) | (2.7 | ) | (26.6 | ) | ||||||||||||||||||||
Other fair value changes: | ||||||||||||||||||||||||||||||||||||||||
Securities | 1.2 | (0.4 | ) | 0.8 | — | — | (0.3 | ) | 0.1 | (0.2 | ) | — | — | |||||||||||||||||||||||||||
Hedge derivatives | 52.5 | (12.8 | ) | 39.7 | — | 2.7 | 31.0 | (4.4 | ) | 26.6 | — | 2.8 | ||||||||||||||||||||||||||||
Reclassification to earnings: | ||||||||||||||||||||||||||||||||||||||||
Hedge derivatives (a) | (18.4 | ) | 1.4 | (17.0 | ) | — | (2.3 | ) | (7.0 | ) | 1.7 | (5.3 | ) | — | 2.0 | |||||||||||||||||||||||||
Amortization of losses and prior service costs (b) | 148.8 | (56.5 | ) | 92.3 | — | — | 157.1 | (59.3 | ) | 97.8 | — | — | ||||||||||||||||||||||||||||
Other comprehensive income (loss) | $ | 330.1 | $ | (68.3 | ) | 261.8 | (15.7 | ) | (41.5 | ) | $ | (42.3 | ) | $ | (61.9 | ) | (104.2 | ) | (2.7 | ) | (21.8 | ) | ||||||||||||||||||
Total comprehensive income (loss) | $ | 1,510.4 | $ | (5.0 | ) | $ | (15.3 | ) | $ | 1,213.6 | $ | 5.5 | $ | (1.4 | ) | |||||||||||||||||||||||||
Six-Month Period Ended | Six-Month Period Ended | |||||||||||||||||||||||||||||||||||||||
Nov. 26, 2017 | Nov. 27, 2016 | |||||||||||||||||||||||||||||||||||||||
General Mills | Noncontrolling Interests | Redeemable Interest | General Mills | Noncontrolling Interests | Redeemable Interest | |||||||||||||||||||||||||||||||||||
In Millions | Pretax | Tax | Net | Net | Net | Pretax | Tax | Net | Net | Net | ||||||||||||||||||||||||||||||
Net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 835.2 | $ | 6.0 | $ | 11.2 | $ | 890.8 | $ | 7.8 | $ | 16.7 | ||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | $ | (48.6 | ) | $ | — | (48.6 | ) | 22.1 | 46.0 | $ | 37.0 | $ | — | 37.0 | (15.2 | ) | (47.1 | ) | ||||||||||||||||||||||
Other fair value changes: | ||||||||||||||||||||||||||||||||||||||||
Securities | 1.3 | (0.5 | ) | 0.8 | — | — | 0.5 | (0.2 | ) | 0.3 | — | — | ||||||||||||||||||||||||||||
Hedge derivatives | (12.2 | ) | 2.7 | (9.5 | ) | — | 0.6 | 58.7 | (14.1 | ) | 44.6 | — | 2.7 | |||||||||||||||||||||||||||
Reclassification to earnings: | ||||||||||||||||||||||||||||||||||||||||
Hedge derivatives (a) | 3.3 | (1.6 | ) | 1.7 | — | (1.1 | ) | (8.6 | ) | (0.4 | ) | (9.0 | ) | — | (1.6 | ) | ||||||||||||||||||||||||
Amortization of losses and prior service costs (b) | 87.6 | (31.9 | ) | 55.7 | — | — | 100.8 | (38.4 | ) | 62.4 | — | — | ||||||||||||||||||||||||||||
Other comprehensive income (loss) | $ | 31.4 | $ | (31.3 | ) | 0.1 | 22.1 | 45.5 | $ | 188.4 | $ | (53.1 | ) | 135.3 | (15.2 | ) | (46.0 | ) | ||||||||||||||||||||||
Total comprehensive income (loss) | $ | 835.3 | $ | 28.1 | $ | 56.7 | $ | 1,026.1 | $ | (7.4 | ) | $ | (29.3 | ) | ||||||||||||||||||||||||||
(a) | (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. |
(b) | Loss reclassified from AOCI into earnings is reported in SG&A expenses. |
Accumulated other comprehensive loss balances, net of tax effects, were as follows:
In Millions | Feb. 26, 2017 | May 29, 2016 | Nov. 26, 2017 | May 28, 2017 | ||||||||||||
Foreign currency translation adjustments | $ | (498.2 | ) | $ | (644.2 | ) | $ | (673.3 | ) | $ | (624.7 | ) | ||||
Unrealized gain (loss) from: | ||||||||||||||||
Securities | 4.6 | 3.8 | 5.4 | 4.6 | ||||||||||||
Hedge derivatives | (2.8 | ) | (25.5 | ) | (6.3 | ) | 1.5 | |||||||||
Pension, other postretirement, and postemployment benefits: | ||||||||||||||||
Net actuarial loss | (1,867.7 | ) | (1,958.2 | ) | (1,588.8 | ) | (1,645.4 | ) | ||||||||
Prior service costs | 13.7 | 11.9 | ||||||||||||||
Prior service credits | 18.6 | 19.5 | ||||||||||||||
Accumulated other comprehensive loss | $ | (2,350.4 | ) | $ | (2,612.2 | ) | $ | (2,244.4 | ) | $ | (2,244.5 | ) | ||||
17
(10) Stock Plans
We have various stock-based compensation programs under which awards, including stock options, restricted stock, restricted stock units, and performance awards, may be granted to employees andnon-employee directors. These programs and related accounting are described in Note 11 to the Consolidated Financial Statements included in our Annual Report on Form10-K for the fiscal year ended May 29, 2016.28, 2017, and Note 16 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Compensation expense related to stock-based payments recognized in the Consolidated Statements of Earnings was as follows:
Quarter Ended | Nine-Month Period Ended | Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||||||||
In Millions | Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||||||||||||||
Compensation expense related to stock-based payments | $ | 20.1 | $ | 19.1 | $ | 77.7 | $ | 73.4 | $ | 19.3 | $ | 18.6 | $ | 48.9 | $ | 57.6 | ||||||||||||||||
Compensation expense related to stock-based payments recognized in the Consolidated Statements of Earnings includes amounts recognized in restructuring, impairment, and other exit costs in fiscal 2016.2017 and fiscal 2018.
As of FebruaryNovember 26, 2017, unrecognized compensation expense related tonon-vested stock options, restricted stock units, and performance share units was $117.1$128.4 million. This expense will be recognized over 2125 months, on average.
Net cash proceeds from the exercise of stock options less shares used for withholding taxes and the intrinsic value of options exercised were as follows:
Nine-Month Period Ended | Six-Month Period Ended | |||||||||||||||
In Millions | Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||
Net cash proceeds | $ | 90.5 | $ | 103.0 | $ | 50.6 | $ | 77.0 | ||||||||
Intrinsic value of options exercised | $ | 153.1 | $ | 141.7 | $ | 46.0 | $ | 131.9 | ||||||||
We estimate the fair value of each stock option on the grant date using a Black-Scholes option-pricing model. Black-Scholes option-pricing models require us to make predictive assumptions regarding future stock price volatility, employee exercise behavior, and dividend yield. 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 method of selecting the other valuation assumptions is explained in Note 11 to the Consolidated Financial Statements included in our Annual Report on Form10-K for the fiscal year ended May 29, 2016.28, 2017.
The estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:
Nine-Month Period Ended | Six-Month Period Ended | |||||||||||||||
Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | |||||||||||||
Estimated fair values of stock options granted | $ | 8.80 | $ | 7.24 | $ | 6.18 | $ | 8.80 | ||||||||
Assumptions: | ||||||||||||||||
Risk-free interest rate | 1.7 | % | 2.4 | % | 2.2 | % | 1.7 | % | ||||||||
Expected term | 8.5 years | 8.5 years | 8.2 years | 8.5 years | ||||||||||||
Expected volatility | 17.8 | % | 17.6 | % | 15.8 | % | 17.8 | % | ||||||||
Dividend yield | 2.9 | % | 3.2 | % | 3.6 | % | 2.9 | % | ||||||||
18
Information on stock option activity follows:
Options Outstanding (Thousands) | Weighted- Price Per | Weighted- Average Term | 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 29, 2016 | 32,401.6 | $ | 37.09 | |||||||||||||||||||||||||||||
Balance as of May 28, 2017 | 29,834.4 | $ | 40.47 | |||||||||||||||||||||||||||||
Granted | 2,446.0 | 66.52 | 2,816.7 | 55.52 | ||||||||||||||||||||||||||||
Exercised | (3,980.2 | ) | 30.43 | (1,930.2 | ) | 31.13 | ||||||||||||||||||||||||||
Forfeited or expired | (103.9 | ) | 57.44 | (85.4 | ) | 58.11 | ||||||||||||||||||||||||||
Outstanding as of Feb. 26, 2017 | 30,763.5 | $ | 40.22 | 4.37 | $ | 662.9 | ||||||||||||||||||||||||||
Exercisable as of Feb. 26, 2017 | 21,816.9 | $ | 33.75 | 2.96 | $ | 602.6 | ||||||||||||||||||||||||||
Outstanding as of Nov. 26, 2017 | 30,635.5 | $ | 42.40 | 4.47 | $ | 384.7 | ||||||||||||||||||||||||||
Exercisable as of Nov. 26, 2017 | 21,551.0 | $ | 35.81 | 2.88 | $ | 384.7 | ||||||||||||||||||||||||||
Information on restricted stock and performance share unit activity follows:
Equity Classified | Liability Classified | Equity Classified | Liability Classified | |||||||||||||||||||||||||||||
Share-Settled Units (Thousands) | Weighted- Grant-Date Fair Value | Share-Settled Units (Thousands) | Weighted- Grant-Date Fair Value | Share- Settled | Weighted- Average Grant-Date Fair Value | Share- Settled | Weighted- Average Grant-Date Fair Value | |||||||||||||||||||||||||
Non-vested as of May 29, 2016 | 5,100.4 | $ | 48.60 | 211.4 | $ | 48.37 | ||||||||||||||||||||||||||
Non-vested as of May 28, 2017 | 4,491.2 | $ | 56.08 | 123.3 | $ | 56.93 | ||||||||||||||||||||||||||
Granted | 1,387.9 | 67.08 | 49.1 | 66.92 | 1,448.4 | 55.34 | 43.0 | 55.49 | ||||||||||||||||||||||||
Vested | (1,610.1 | ) | 41.75 | (89.6 | ) | 38.77 | (1,509.5 | ) | 49.80 | (35.8 | ) | 49.36 | ||||||||||||||||||||
Forfeited | (272.4 | ) | 57.25 | (8.6 | ) | 57.18 | (330.0 | ) | 63.98 | (8.2 | ) | 58.91 | ||||||||||||||||||||
Exercisable as of Feb. 26, 2017 | 4,605.8 | $ | 56.07 | 162.3 | $ | 55.99 | ||||||||||||||||||||||||||
Non-vested as of Nov. 26, 2017 | 4,100.1 | $ | 57.49 | 122.3 | $ | 58.34 | ||||||||||||||||||||||||||
The total grant date fair value of restricted stock unit awards that vested during the period follows:
Nine-Month Period Ended | Six-Month Period Ended | |||||||||||||||
In Millions | Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||
Total grant date fair value | $ | 71.2 | $ | 98.4 | $ | 77.0 | $ | 59.6 | ||||||||
19
(11) Earnings Per Share
Basic and diluted earnings per share (EPS) were calculated using the following:
Quarter Ended | Nine-Month Period Ended | |||||||||||||||
In Millions, Except per Share Data | Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | ||||||||||||
Net earnings attributable to General Mills | $ | 357.8 | $ | 361.7 | $ | 1,248.6 | $ | 1,317.8 | ||||||||
Average number of common shares - basic EPS | 580.7 | 595.6 | 589.8 | 599.1 | ||||||||||||
Incremental share effect from: (a) | ||||||||||||||||
Stock options | 7.8 | 9.6 | 8.5 | 9.9 | ||||||||||||
Restricted stock, restricted stock units, and other | 2.9 | 3.3 | 2.8 | 3.2 | ||||||||||||
Average number of common shares - diluted EPS | 591.4 | 608.5 | 601.1 | 612.2 | ||||||||||||
Earnings per share - basic | $ | 0.62 | $ | 0.61 | $ | 2.12 | $ | 2.20 | ||||||||
Earnings per share - diluted | $ | 0.61 | $ | 0.59 | $ | 2.08 | $ | 2.15 | ||||||||
Quarter Ended | Six-Month Period Ended | |||||||||||||||
In Millions, Except per Share Data | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||
Net earnings attributable to General Mills | $ | 430.5 | $ | 481.8 | $ | 835.2 | $ | 890.8 | ||||||||
Average number of common shares - basic EPS | 571.3 | 588.8 | 574.0 | 594.4 | ||||||||||||
Incremental share effect from: (a) | ||||||||||||||||
Stock options | 7.0 | 8.1 | 7.6 | 8.8 | ||||||||||||
Restricted stock, restricted stock units, and other | 2.0 | 2.8 | 2.0 | 2.8 | ||||||||||||
Average number of common shares - diluted EPS | 580.3 | 599.7 | 583.6 | 606.0 | ||||||||||||
Earnings per share - basic | $ | 0.75 | $ | 0.82 | $ | 1.46 | $ | 1.50 | ||||||||
Earnings per share - diluted | $ | 0.74 | $ | 0.80 | $ | 1.43 | $ | 1.47 | ||||||||
(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: |
Quarter Ended | Nine-Month Period Ended | Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||||||||
In Millions | Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||||||||||||||
Anti-dilutive stock options, restricted stock units, and performance share units | 2.4 | 1.2 | 2.2 | 2.7 | 9.2 | 2.5 | 7.5 | 2.2 | ||||||||||||||||||||||||
(12) Share Repurchases
Share repurchases were as follows:
Quarter Ended | Nine-Month Period Ended | Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||||||||
In Millions | Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||||||||||||||
Shares of common stock | 4.9 | 1.1 | 25.4 | 10.6 | — | 14.9 | 10.9 | 20.5 | ||||||||||||||||||||||||
Aggregate purchase price | $ | 301.0 | $ | 64.5 | $ | 1,650.9 | $ | 601.8 | $ | 0.2 | $ | 950.2 | $ | 600.5 | $ | 1,349.9 | ||||||||||||||||
(13) Statements of Cash Flows
Our Consolidated Statements of Cash Flows include the following:
Nine-Month Period Ended | Six-Month Period Ended | |||||||||||||||
In Millions | Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||
Net cash interest payments | $ | 263.8 | $ | 269.6 | $ | 133.7 | $ | 141.9 | ||||||||
Net income tax payments | �� | $ | 394.3 | $ | 421.1 | $ | 333.0 | $ | 290.8 | |||||||
20
(14) Retirement and Postemployment Benefits
Beginning inIn fiscal 2017, we changed the method used to 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. We adopted a full yield curve approach to estimate service cost and interest cost by applying the specific spot rates along the yield curve used to determine the benefit obligation to the relevant projected cash flows. This method provides a more precise measurement of service and interest costs by correlating the timing of the plans’ liability cash flows to the corresponding rate on the yield curve. Previously, we estimated service cost and interest cost using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. This change does not affect the measurement of our benefit obligations related to these plans. We have accounted for this change prospectively as a change in accounting estimate beginning in the first quarter of fiscal 2017. The change in methodology resulted in a decrease in service and interest cost of approximately $17 million in the three months ended February 26, 2017 and approximately $51 million in the nine-month period ended February 26, 2017 compared to what our costs would have been under the previous method. We expect this change to result in a reduction in our service and interest cost of approximately $68 million for fiscal 2017 compared to our previous methodology. The fiscal 2017 reduction in our net periodic benefit expense as a result of this change in methodology is partially offset by a reduction in 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 8.25 percent as a result of asset changes that decreased investment risk in the portfolio.
Components of net periodic benefit expense are as follows:
Defined Benefit Pension Plans | Other Postretirement Benefit Plans | Postemployment Benefit Plans | Defined Benefit Pension Plans | Other Postretirement Benefit Plans | Postemployment Benefit Plans | |||||||||||||||||||||||||||||||||||||||||||
Quarter Ended | Quarter Ended | Quarter Ended | Quarter Ended | Quarter Ended | Quarter Ended | |||||||||||||||||||||||||||||||||||||||||||
In Millions | Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||||||||||||||||||||||||||
Service cost | $ | 29.9 | $ | 33.5 | $ | 3.2 | $ | 4.7 | $ | 2.2 | $ | 1.9 | $ | 25.7 | $ | 30.0 | $ | 2.9 | $ | 3.1 | $ | 2.2 | $ | 2.2 | ||||||||||||||||||||||||
Interest cost | 54.1 | 66.9 | 8.2 | 11.0 | 0.7 | 1.0 | 54.5 | 54.1 | 7.6 | 7.9 | 0.5 | 0.7 | ||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (121.6 | ) | (124.2 | ) | (12.1 | ) | (11.5 | ) | — | — | (120.1 | ) | (121.7 | ) | (13.1 | ) | (12.1 | ) | — | — | ||||||||||||||||||||||||||||
Amortization of losses | 47.2 | 47.6 | 0.6 | 1.7 | 0.4 | 0.1 | 44.1 | 47.6 | 0.2 | 0.7 | 0.2 | 0.5 | ||||||||||||||||||||||||||||||||||||
Amortization of prior service costs (credits) | 0.6 | 1.2 | (1.5 | ) | (1.4 | ) | 0.2 | 0.6 | 0.5 | 0.6 | (1.3 | ) | (1.3 | ) | 0.1 | 0.1 | ||||||||||||||||||||||||||||||||
Other adjustments | — | 0.1 | — | — | 3.4 | 2.8 | — | 2.1 | — | 1.3 | 3.4 | 3.4 | ||||||||||||||||||||||||||||||||||||
Settlement or curtailment losses | — | 2.9 | — | 0.7 | — | — | ||||||||||||||||||||||||||||||||||||||||||
Net expense (income) | $ | 10.2 | $ | 25.1 | $ | (1.6 | ) | $ | 4.5 | $ | 6.9 | $ | 6.4 | $ | 4.7 | $ | 15.6 | $ | (3.7 | ) | $ | 0.3 | $ | 6.4 | $ | 6.9 | ||||||||||||||||||||||
Defined Benefit Pension Plans | Other Postretirement Benefit Plans | Postemployment Benefit Plans | Defined Benefit Pension Plans | Other Postretirement Benefit Plans | Postemployment Benefit Plans | |||||||||||||||||||||||||||||||||||||||||||
Nine-Month Period Ended | Nine-Month Period Ended | Nine-Month Period Ended | Six-Month Period Ended | Six-Month Period Ended | Six-Month Period Ended | |||||||||||||||||||||||||||||||||||||||||||
In Millions | Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||||||||||||||||||||||||||
Service cost | $ | 89.9 | $ | 100.9 | $ | 9.4 | $ | 14.2 | $ | 6.6 | $ | 5.7 | $ | 51.4 | $ | 60.0 | $ | 5.8 | $ | 6.2 | $ | 4.3 | $ | 4.4 | ||||||||||||||||||||||||
Interest cost | 162.4 | 200.9 | 24.2 | 33.0 | 2.1 | 3.0 | 108.9 | 108.3 | 15.2 | 16.0 | 1.1 | 1.4 | ||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (365.1 | ) | (372.8 | ) | (36.3 | ) | (34.6 | ) | — | — | (240.0 | ) | (243.5 | ) | (26.1 | ) | (24.2 | ) | — | — | ||||||||||||||||||||||||||||
Amortization of losses | 142.2 | 142.3 | 1.9 | 5.0 | 1.3 | 0.5 | 88.2 | 95.0 | 0.4 | 1.3 | 0.4 | 0.9 | ||||||||||||||||||||||||||||||||||||
Amortization of prior service costs (credits) | 1.8 | 3.6 | (4.1 | ) | (4.1 | ) | 0.5 | 1.8 | 1.0 | 1.2 | (2.7 | ) | (2.6 | ) | 0.3 | 0.3 | ||||||||||||||||||||||||||||||||
Other adjustments | 2.1 | 5.1 | 1.3 | 2.4 | 10.2 | 9.3 | — | 2.1 | — | 1.3 | 6.8 | 6.8 | ||||||||||||||||||||||||||||||||||||
Settlement or curtailment losses | 4.4 | 11.3 | 0.7 | 0.2 | — | — | — | 4.4 | — | 0.7 | — | — | ||||||||||||||||||||||||||||||||||||
Net expense (income) | $ | 37.7 | $ | 91.3 | $ | (2.9 | ) | $ | 16.1 | $ | 20.7 | $ | 20.3 | $ | 9.5 | $ | 27.5 | $ | (7.4 | ) | $ | (1.3 | ) | $ | 12.9 | $ | 13.8 | |||||||||||||||||||||
21
(15) Business Segment Information
We operate in the consumer foods industry. In the third quarter of fiscal 2017, we announced a new global organization structure to streamline our leadership, enhance global scale, and drive improved operational agility to maximize our growth capabilities. This global reorganization required us to reevaluate our operating segments. Under our new organization structure, our chief operating decision maker assesses performance and makes decisions about resources to be allocated to our operating segments as follows: North America Retail; Convenience Stores & Foodservice; Europe & Australia; and Asia & Latin America.
We have restated our net sales by segment and segment operating profit to reflect our new operating segments. These segment changes had no effect on previously reported consolidated net sales, operating profit, net earnings attributable to General Mills, or earnings per share.
Our North America Retail operating segment consists of our former U.S. Retail operating units and our Canada region. Within our North America Retail operating segment, our former U.S. Meals operating unit and U.S. Baking operating unit have been combined into one operating unit: U.S. Meals & Baking. The segment reflects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains, ande-commerce grocery providers. Our product categories in this business segment areready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks, and a wide variety of organic products including refrigerated yogurt, nutrition bars, meal kits, granola bars, andsalty snacks,ready-to-eat cereal.cereal, and grain snacks.
Our Europe & Australia operating segment consists of our former Europe region. The 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 end customer is located.
Our Convenience Stores & Foodservice operating segment was unchanged. Our major product categories in this 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.
Our Europe & Australia operating segment consists of our former Europe region. The segment reflects retail and foodservice businesses in the greater Europe & 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 end customer is located.
Our Asia & Latin America operating segment consists of our former Asia/Pacific and Latin America regions. The 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 are reported in the region or country where the end customer is located.
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 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. 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.
22
Our operating segment results were as follows:
Quarter Ended | Nine-Month Period Ended | Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||||||||
In Millions | Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||||||||||||||
Net sales: | ||||||||||||||||||||||||||||||||
North America Retail | $ | 2,499.0 | $ | 2,686.6 | $ | 7,804.8 | $ | 8,460.7 | $ | 2,771.8 | $ | 2,748.8 | $ | 5,210.0 | $ | 5,305.8 | ||||||||||||||||
Convenience Stores & Foodservice | 448.5 | 453.7 | 1,382.3 | 1,437.2 | 512.2 | 487.5 | 959.3 | 933.8 | ||||||||||||||||||||||||
Europe & Australia | 424.5 | 439.4 | 1,338.0 | 1,431.3 | 466.7 | 435.1 | 958.6 | 913.5 | ||||||||||||||||||||||||
Asia & Latin America | 421.2 | 422.7 | 1,288.1 | 1,306.0 | 448.0 | 440.7 | 840.0 | 866.9 | ||||||||||||||||||||||||
Total | $ | 3,793.2 | $ | 4,002.4 | $ | 11,813.2 | $ | 12,635.2 | $ | 4,198.7 | $ | 4,112.1 | $ | 7,967.9 | $ | 8,020.0 | ||||||||||||||||
Operating profit: | ||||||||||||||||||||||||||||||||
North America Retail | $ | 516.7 | $ | 552.7 | $ | 1,795.9 | $ | 1,886.0 | $ | 622.9 | $ | 651.0 | $ | 1,156.1 | $ | 1,279.2 | ||||||||||||||||
Convenience Stores & Foodservice | 93.6 | 90.6 | 295.4 | 273.2 | 106.5 | 109.1 | 191.3 | 201.8 | ||||||||||||||||||||||||
Europe & Australia | 42.0 | 33.6 | 127.2 | 143.9 | 26.9 | 41.3 | 57.5 | 85.2 | ||||||||||||||||||||||||
Asia & Latin America | 10.0 | 2.5 | 61.3 | 42.2 | 16.7 | 29.0 | 32.2 | 51.3 | ||||||||||||||||||||||||
Total segment operating profit | 662.3 | 679.4 | 2,279.8 | 2,345.3 | 773.0 | 830.4 | 1,437.1 | 1,617.5 | ||||||||||||||||||||||||
Unallocated corporate items | 42.2 | 77.7 | 143.6 | 232.3 | 41.6 | 19.0 | 74.7 | 101.4 | ||||||||||||||||||||||||
Divestitures loss (gain) | — | (1.5 | ) | 13.5 | (200.6 | ) | ||||||||||||||||||||||||||
Divestiture loss | — | 13.5 | — | 13.5 | ||||||||||||||||||||||||||||
Restructuring, impairment, and other exit costs | 77.6 | 16.9 | 165.5 | 138.3 | 1.6 | 29.0 | 6.8 | 87.9 | ||||||||||||||||||||||||
Operating profit | $ | 542.5 | $ | 586.3 | $ | 1,957.2 | $ | 2,175.3 | $ | 729.8 | $ | 768.9 | $ | 1,355.6 | $ | 1,414.7 | ||||||||||||||||
(16) New Accounting Pronouncements
In the first quarter of fiscal 2018, we adopted new requirements for the accounting 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 of additionalpaid-in capital within our Consolidated Balance Sheets. We recognized a windfall tax benefit in income tax expense in our Consolidated Statements of Earnings of $2.5 million in the second quarter of fiscal 2018 and $20.2 million in thesix-month period ended November 26, 2017. We retrospectively adopted the guidance related to reclassification of realized windfall tax benefits in our Consolidated Statements of Cash Flows. This resulted in reclassifications of $20.2 million and $59.7 million of cash provided by financing activities to operating activities for thesix-month periods ended November 26, 2017 and November 27, 2016, respectively. Additionally, we retrospectively adopted the guidance related to reclassification of employee tax withholdings in our Consolidated Statements of Cash Flows. This resulted in reclassifications of $21.4 million and $31.4 million of cash used by operating activities to financing activities for thesix-month periods ended November 26, 2017 and November 27, 2016, respectively. Stock-based compensation expense continues to reflect estimated forfeitures.
In the first quarter of fiscal 2018, we adopted new accounting requirements forwhich permit reporting entities to measure a goodwill impairment loss by the presentation of certain investments usingamount by which a reporting unit’s carrying value exceeds the net asset value, providing a practical expedientreporting unit’s fair value. Previously, goodwill impairment losses were required to exclude such investments from categorization withinbe measured by determining the implied fair value hierarchyof goodwill. Our annual goodwill impairment test was performed as of the first day of the second quarter of fiscal 2018 and separate disclosure. Thethe 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 is not expected to have a material impact on our results of operations or financial position.
23
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
INTRODUCTION
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the MD&A included in our Annual Report on Form10-K for the fiscal year ended May 29, 201628, 2017 for important background regarding, among other things, our key business drivers. Significant trademarks and service marks used in our business are set forth initalicsherein. Certain terms used throughout this report are defined in the “Glossary” section below.
CONSOLIDATED RESULTS OF OPERATIONS
ThirdSecond Quarter Results
In the thirdsecond quarter of fiscal 2017, operating results reflected challenging2018, net sales performance. However, we continued progress against our cost savings and margin expansion initiatives. The net sales decline of 5increased 2 percent wascompared to the same period last year, driven by decliningfavorable foreign currency exchange and favorable net price realization and mix. Increased contributions from volume growth in the North America Retail, segment whichConvenience Stores & Foodservice and Europe & Australia segments were partially offset by positivelower contributions from volume growth in the Asia & Latin America segment. In the second quarter, increased sales from innovation, higher brand-building investment, and more effective merchandising contributed to organic net price realizationsales growth of 1 percent and mix.market share gains in the majority of our key global platforms. Operating profit margin of 14.317.4 percent was down 30130 basis points fromyear-ago levels primarily driven by an increaselower segment operating profit results and lowermark-to-market valuation of certain commodity positions, partially offset by a decrease in restructuring expenses. Adjusted operating profit margin increased 100decreased 220 basis points to 16.917.4 percent, primarily driven by the impact ofhigher input costs including currency-driven inflation on imported products in certain markets, unfavorable trade expense phasing and higher media and advertising expense, partially offset by benefits from cost savings and spending optimization initiatives. Diluted earnings per share of $0.61 increased 3$0.74 decreased 8 percent compared to the thirdsecond quarter of fiscal 20162017 and adjusted diluted earnings per share of $0.82, which excludes certain items affecting comparability, on a constant-currency basis increased 8decreased 5 percent compared to the thirdsecond quarter last year (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 the thirdsecond quarter of fiscal 20172018 follows:
Quarter Ended Feb. 26, 2017 | In millions, except per share | Quarter Ended Feb. 28, 2016 | Percent of Net Sales | Constant- Currency Growth (a) | ||||||||||||
Net sales | $ | 3,793.2 | (5 | )% | ||||||||||||
Operating profit | 542.5 | (7 | )% | 14.3 | % | |||||||||||
Net earnings attributable to General Mills | 357.8 | (1 | )% | |||||||||||||
Diluted earnings per share | $ | 0.61 | 3 | % | ||||||||||||
Organic net sales growth rate (a) | (5 | )% | ||||||||||||||
Total segment operating profit (a) | 662.3 | (2 | )% | (2 | )% | |||||||||||
Adjusted operating profit margin (a) | 16.9 | % | ||||||||||||||
Diluted earnings per share, excluding certain items affecting comparability (a) | $ | 0.72 | 11 | % | 8 | % | ||||||||||
Quarter Ended Nov. 26, 2017 | In millions, except per share | �� | Quarter Ended Nov. 26, 2017 vs. Nov. 27, 2016 | Percent of Net Sales | Constant- Currency | |||||||||||
Net sales | $ | 4,198.7 | 2 | % | ||||||||||||
Operating profit | 729.8 | (5 | )% | 17.4 | % | |||||||||||
Net earnings attributable to General Mills | 430.5 | (11 | )% | |||||||||||||
Diluted earnings per share | $ | 0.74 | (8 | )% | ||||||||||||
Organic net sales growth rate (a) | 1 | % | ||||||||||||||
Total segment operating profit (a) | 773.0 | (7 | )% | (8 | )% | |||||||||||
Adjusted operating profit margin (a) | 17.4 | % | ||||||||||||||
Diluted earnings per share, excluding certain items affecting comparability (a) | $ | 0.82 | (4 | )% | (5 | )% | ||||||||||
(a) | See the“Non-GAAP Measures” section below for our use of measures not defined by GAAP. |
Consolidatednetsales were as follows:
Quarter Ended | ||||||||||||
Feb. 26, 2017 | Feb. 26, 2017 vs Feb. 28, 2016 | Feb. 28, 2016 | ||||||||||
Net sales (in millions) | $ | 3,793.2 | (5) % | $ | 4,002.4 | |||||||
| ||||||||||||
Contributions from volume growth (a) | (6) pts | |||||||||||
Net price realization and mix | 1 pt | |||||||||||
Foreign currency exchange | Flat | |||||||||||
Quarter Ended | ||||||||||||
Nov. 26, 2017 | Nov. 26, 2017 vs Nov. 27, 2016 | Nov. 27, 2016 | ||||||||||
Net sales (in millions) | $ | 4,198.7 | 2 | % | $ | 4,112.1 | ||||||
|
| |||||||||||
Contributions from volume growth (a) | Flat | |||||||||||
Net price realization and mix | 1 | pt | ||||||||||
Foreign currency exchange | 1 | pt | ||||||||||
(a) | Measured in tons based on the stated weight of our product shipments. |
The 52 percent declineincrease in net sales in the second quarter of fiscal 2018 was primarily reflected lower organicdriven by favorable foreign currency exchange and favorable net sales.
24
Organic net sales declined 5increased 1 percent in the second quarter of fiscal 2018 primarily driven by favorable organic volume declines in the North America Retail and Asia & Latin America segments, which were partially offset by positive net price realization and mix. To improve comparability of results from period to period, organic net sales exclude the impacts of foreign currency exchange rate fluctuations, as well as acquisitions, divestitures, and a 53rd week of results, when applicable.
Components of organic net sales growth are shown in the following table:
Quarter Ended Quarter Ended | |||||||
Contributions from organic volume growth (a) | |||||||
Organic net price realization and mix | |||||||
pt | |||||||
Organic net sales growth | pt | ||||||
Foreign currency exchange | pt | ||||||
Acquisitions and divestitures | Flat | ||||||
Net sales growth | pts | ||||||
(a) | Measured in tons based on the stated weight of our product shipments. |
Costofsalesdecreased $159 increased $163 million from the thirdsecond quarter of fiscal 20162017 to $2,486$2,756 million. The decreaseincrease included a $152 million decrease attributable to lower volume and a $7$148 million increase attributable to product rate and mix.mix and a $9 million increase attributable to higher volume. We recorded an $8a $4 million net decrease in cost of sales related to themark-to-market valuation of certain commodity positions and grain inventories in the thirdsecond quarter of fiscal 20172018 compared to a net increasedecrease of $7$29 million in the thirdsecond quarter of fiscal 2016.2017. We recorded $16$1 million of restructuring charges in cost of sales in the thirdsecond quarter of fiscal 20172018 compared to $17$13 million in the same period last year. We also recorded $12$4 million of restructuring initiative project-related costs in the thirdsecond quarter of fiscal 20172018 compared to $10$11 million in the same period last year (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).
Selling,general,andadministrative(SG&A)expensesdecreased $68 increased $4 million to $688$712 million in the thirdsecond quarter of fiscal 20172018 compared to the same period in fiscal 2016.2017. The decreaseincrease in SG&A expenses primarily reflects a 7 percentage point increase in media and advertising expense partially offset by savings from cost management initiatives and an 8 percentage point decrease in media and advertising expense.initiatives. SG&A expenses as a percent of net sales in the thirdsecond quarter of fiscal 20172018 decreased 7630 basis points compared with the thirdsecond quarter of fiscal 2016.2017.
DivestitureLoss totaled $14 million from the sale of our Martel, Ohio manufacturing facility during the second quarter of fiscal 2017.
Restructuring,impairment,andotherexitcoststotaled $78$2 million in the thirdsecond quarter of fiscal 20172018 compared to $17$29 million in the same period last year.
Total charges associated with our current restructuring initiatives were as follows:
As Reported | ||||||||||||||||
Quarter Ended | ||||||||||||||||
Feb. 26, 2017 | Feb. 28, 2016 | |||||||||||||||
In Millions | Charge | Cash | Charge | Cash | ||||||||||||
Global reorganization | $ | 73.1 | $ | 9.2 | $ | — | $ | — | ||||||||
Closure of Melbourne, Australia plant | 5.7 | 0.1 | — | — | ||||||||||||
Restructuring of certain international product lines | 2.3 | 0.2 | — | — | ||||||||||||
Closure of Vineland, New Jersey plant | 7.7 | 0.3 | — | — | ||||||||||||
Project Compass | (1.4 | ) | 3.4 | (0.8 | ) | 3.6 | ||||||||||
Project Century | 7.1 | 8.9 | 43.9 | 24.9 | ||||||||||||
Project Catalyst | — | 0.6 | (8.9 | ) | 11.3 | |||||||||||
Combination of certain operational facilities | (0.5 | ) | 1.1 | — | 1.2 | |||||||||||
Total restructuring charges (a) | 94.0 | 23.8 | 34.2 | 41.0 | ||||||||||||
Project-related costs | 11.5 | 11.5 | 10.1 | 10.5 | ||||||||||||
Restructuring charges and project-related costs | $ | 105.5 | $ | 35.3 | $ | 44.3 | $ | 51.5 | ||||||||
Quarter Ended | ||||||||||||||||
In Millions | Nov. 26, 2017 | Nov. 27, 2016 | ||||||||||||||
Charge | Cash | Charge | Cash | |||||||||||||
Global reorganization | $ | 0.6 | $ | 11.1 | $ | — | $ | — | ||||||||
Closure of Melbourne, Australia plant | 2.8 | 2.6 | 12.0 | — | ||||||||||||
Restructuring of certain international product lines | — | — | 6.9 | 7.1 | ||||||||||||
Closure of Vineland, New Jersey plant | (1.3 | ) | (9.1 | ) | 7.0 | 1.2 | ||||||||||
Project Compass | — | 0.6 | — | 3.7 | ||||||||||||
Project Century | 0.1 | (5.0 | ) | 15.9 | 13.0 | |||||||||||
Project Catalyst | — | — | — | 0.9 | ||||||||||||
Combination of certain operational facilities | — | 0.2 | — | 1.5 | ||||||||||||
Total restructuring charges (a) | 2.2 | 0.4 | 41.8 | 27.4 | ||||||||||||
Project-related costs | 4.2 | 2.3 | 11.1 | 11.9 | ||||||||||||
Restructuring charges and project-related costs | $ | 6.4 | $ | 2.7 | $ | 52.9 | $ | 39.3 | ||||||||
(a) | Includes |
For further information on these restructuring initiatives, please refer to Note 3 to the Consolidated Financial Statements in Part 1, Item 1 of this report.
Interest,netfor the thirdsecond quarter of fiscal 20172018 totaled $76$75 million, down $1 million from fiscal 2016.
25
Theeffectivetaxrate for the thirdsecond quarter of fiscal 20172018 was 23.035.9 percent compared to 31.032.8 percent for the thirdsecond quarter of fiscal 2016.2017. The 8.03.1 percentage point decreaseincrease was primarily due to favorable impacts of French tax legislation and other favorable discrete tax items that occurred duringa $42 million prior year adjustment recorded in the thirdsecond quarter of fiscal 2017.2018 (see Note 1 to the Consolidated Financial Statements in Part 1, Item 1 of this report), partially offset by favorable impacts from certain changes in French tax law and the prospective adoption of the new accounting standard related to windfall tax benefits from stock-based payments (see Note 16 to the Consolidated Financial Statements in Part 1, Item 1 of this report). Our effective tax rate excluding certain items affecting comparability was 24.729.3 percent in the third quarter of fiscalended November 26, 2017 compared to 30.832.4 percent in the third quarter of fiscal 2016same period last year (see the“Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).
The United States Congress is currently working on enacting a tax reform bill, which would result in significant changes to the U.S. tax system. We expect that if a bill is enacted, it could have a material impact on our Consolidated Financial Statements in future periods. We continue to monitor developments and assess the impact to General Mills.
After-taxearningsfromjointventures decreased $6 million to $24 million for the thirdsecond quarter of fiscal 2017 decreased to $11 million2018 compared to $16 million in the same quarterperiod last fiscal year, primarily driven by an assetwrite-offlower volume and higher input costs for Cereal Partners Worldwide (CPW) and lower volume growthunfavorable foreign currency exchange and unfavorable product mix forHäagen-Dazs Japan, Inc. (HDJ). On a constant-currency basis,after-tax earnings from joint ventures decreased 3519 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:
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
Quarter Ended Nov. 26, 2017 vs. Quarter Ended Nov. 27, 2016 | CPW | HDJ | ||||||
Contributions from volume growth (a) | (2 | )pts | (1 | )pt | ||||
Net price realization and mix | Flat | (2 | )pts | |||||
Foreign currency exchange | 4 | pts | (7 | )pts | ||||
Net sales growth | 2 | pts | (10 | )pts | ||||
(a) | Measured in tons based on the stated weight of our product shipments. |
The change in net sales for each joint venture on a constant-currency basis is set forth in the following table:
Quarter Ended Feb. 26, 2017 | Quarter Ended Nov. 26, 2017 | |||||||||||||||||||||||
Percentage Change in Net Sales as Reported | Impact of Foreign Currency Exchange | Percentage Change in Net Sales on Constant- | Percentage Change in Joint Venture Net Sales as Reported | Impact of Foreign Currency Exchange | Percentage Change in Joint Venture Net Sales on Constant- Currency Basis | |||||||||||||||||||
CPW | 2 % | (2) pts | 4 % | 2 | % | 4 | pts | (2 | )% | |||||||||||||||
HDJ | (2)% | 3 pts | (5)% | (10 | )% | (7 | )pts | (3 | )% | |||||||||||||||
Joint Ventures | 1 % | (1) pt | 2 % | (1 | )% | 1 | pt | (2 | )% | |||||||||||||||
Averagedilutedsharesoutstandingdecreased by 1719 million in the thirdsecond quarter of fiscal 20172018 from the same period a year ago due to the impact of share repurchases, partially offset by option exercises.
Nine-MonthSix-Month Results
In the nine-monthssix-month period ended FebruaryNovember 26, 2017, operating results reflected challenging net sales performance. However, we continued progress against our cost savings and margin expansion initiatives. The 7declined 1 percent, decline in net sales wasprimarily driven by declining contributions from volume growth in the North America Retail and EuropeAsia & AustraliaLatin America segments includingpartially offset by increasing contributions from volume growth in the impactConvenience Stores & Foodservice segment. Increased sales from innovation, higher brand-building investment, and more effective merchandising contributed to an improvement in organic net sales trends versus the same period a year ago as well as market share gains in the majority of the divestiture of the North American Green Giant product lines (Green Giant).our key global platforms. Operating profit margin of 16.617.0 percent was down 60 basis points fromyear-ago levels primarily driven by lower segment operating profit results and lowermark-to-market valuation of certain commodity positions, partially offset by a gain from the Green Giant divestituredecrease in fiscal 2016. In the nine-month period ended February 26, 2017, we made progress toward our revised fiscal 2017 adjustedrestructuring expenses. Adjusted operating profit margin goal of 18 percent with an increase of 110decreased 220 basis points over the same period in the prior year to 18.617.2 percent, primarily driven by the impact of cost savingshigher input costs including currency-driven inflation on imported products in certain markets, and spending optimization initiatives. For the nine-month period ended February 26, 2017, dilutedunfavorable trade expense phasing. Diluted earnings per share of $2.08$1.43 decreased 3 percent compared to the samesix-month period in fiscalended November 27, 2016, which included the gain from the Green Giant divestiture. Adjustedand adjusted diluted earnings per share, which excludes certain items affecting comparability, on a constant-currency basis for the nine-month period ended February 26, 2017, increased 4decreased 7 percent compared to the same period of fiscal 2016a year ago (see the“Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).
26
A summary of our consolidated financial results for the nine-monthsix-month period ended FebruaryNovember 26, 2017, follows:
Nine-Month Period Ended Feb. 26, 2017 | In millions, except per share | Nine-Month Period Ended Feb. 26, 2017 vs. Feb. 28, 2016 | Percent of Net Sales | Constant- Currency Growth (a) | ||||||||||||
Net sales | $ | 11,813.2 | (7 | )% | ||||||||||||
Operating profit | 1,957.2 | (10 | )% | 16.6 | % | |||||||||||
Net earnings attributable to General Mills | 1,248.6 | (5 | )% | |||||||||||||
Diluted earnings per share | $ | 2.08 | (3 | )% | ||||||||||||
Organic net sales growth rate (a) | (5 | )% | ||||||||||||||
Total segment operating profit (a) | 2,279.8 | (3 | )% | (2 | )% | |||||||||||
Adjusted operating profit margin (a) | 18.6 | % | ||||||||||||||
Diluted earnings per share, excluding certain items affecting comparability (a) | $ | 2.35 | 4 | % | 4 | % | ||||||||||
Six-Month Period Ended Nov. 26, 2017 | In millions, except per share | Six-Month Period Ended Nov. 26, 2017 vs. Nov. 27, 2016 | Percent of Net Sales | Constant- Currency Growth (a) | ||||||||||||
Net sales | $ | 7,967.9 | (1 | )% | ||||||||||||
Operating profit | 1,355.6 | (4 | )% | 17.0 | % | |||||||||||
Net earnings attributable to General Mills | 835.2 | (6 | )% | |||||||||||||
Diluted earnings per share | $ | 1.43 | (3 | )% | ||||||||||||
Organic net sales growth rate (a) | (1 | )% | ||||||||||||||
Total segment operating profit (a) | 1,437.1 | (11 | )% | (12 | )% | |||||||||||
Adjusted operating profit margin (a) | 17.2 | % | ||||||||||||||
Diluted earnings per share, excluding certain items affecting comparability (a) | $ | 1.53 | (6 | )% | (7 | )% | ||||||||||
(a) | See the“Non-GAAP Measures” section below for our use of measures not defined by GAAP. |
Consolidatednetsales were as follows:
Nine-Month Period Ended | ||||||||||||
Feb. 26, 2017 | Feb. 26, 2017 vs Feb. 28, 2016 | Feb. 28, 2016 | ||||||||||
Net sales (in millions) | $ | 11,813.2 | (7) % | $ | 12,635.2 | |||||||
|
| |||||||||||
Contributions from volume growth (a) | (8) pts | |||||||||||
Net price realization and mix | 2 pts | |||||||||||
Foreign currency exchange | (1) pt | |||||||||||
Six-Month Period Ended | ||||||||||||
Nov. 26, 2017 | Nov. 26, 2017 vs Nov. 27, 2016 | Nov. 27, 2016 | ||||||||||
Net sales (in millions) | $ | 7,967.9 | (1 | )% | $ | 8,020.0 | ||||||
|
| |||||||||||
Contributions from volume growth (a) | (1 | )pt | ||||||||||
Net price realization and mix | Flat | |||||||||||
Foreign currency exchange | Flat | |||||||||||
(a) | Measured in tons based on the stated weight of our product shipments. |
The 71 percent decline in net sales for thesix-month period ended November 26, 2017 primarily reflectedreflects lower organic net sales and the Green Giant divestiture in fiscal 2016.sales.
Organic net sales declined 51 percent in thesix-month period ended November 26, 2017, driven by declining contributions from organic volume declinesgrowth in the North America Retail Europe & Australia, and Asia & Latin America segments which were partially offset by positive net price realization and mix.increasing contributions from organic volume growth in the Convenience Stores & Foodservice segment. To improve comparability of results from period to period, organic net sales exclude the impacts of foreign currency exchange rate fluctuations, as well as acquisitions, divestitures, and a 53rd week of results, when applicable.
Components of organic net sales growth are shown in the following table:
| |||||||
Contributions from organic volume growth (a) | )pt | ||||||
Organic net price realization and mix | |||||||
Flat | |||||||
Organic net sales growth | )pt | ||||||
Foreign currency exchange | |||||||
Acquisitions and divestitures | |||||||
Net sales growth | )pt | ||||||
(a) | Measured in tons based on the stated weight of our product shipments. |
27
Costofsalesdecreased $613 increased $131 million from the nine-monthsix-month period ended February 28,November 27, 2016, to $7,569$5,215 million. The decreaseincrease included a $639 million decrease attributable to lower volume and a $65 million$240 increase attributable to product rate and mix. The impact from both volume and product rate and mix included the effects of the divestiture of Green Giant.partially offset by an $82 million decrease attributable to lower volume. We recorded $43$13 million of restructuring charges in cost of sales in the nine-monthsix-month period ended FebruaryNovember 26, 2017, compared to $61$26 million in the same period last year. We also recorded $36$5 million of restructuring initiative project-related costs in the nine-monthsix-month period ended FebruaryNovember 26, 2017, compared to $39$25 million in the same period last year (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report). We recorded a $21$6 million net decrease in cost of sales related to themark-to-market valuation of certain commodity positions and grain inventories in the nine-monthsix-month period ended FebruaryNovember 26, 2017, compared to a net decrease of $3$12 million in the nine-monthsix-month period ended February 28,November 27, 2016.
SG&Aexpensesdecreased $232$29 million to $2,108$1,391 million in the nine-monthsix-month period ended FebruaryNovember 26, 2017, compared to the same period in fiscal 2016.2017. The decrease in SG&A expenses primarily reflects savings from cost management initiatives partially offset by a 174 percentage point decreaseincrease in media and advertising expense and savings from cost management initiatives.expense. SG&A expenses as a percent of net sales in the nine-monthsix-month period ended FebruaryNovember 26, 2017 decreased 6730 basis points compared with the same period of fiscal 2016.2017.
Divestitureloss totaled $14 million from the sale of our Martel, Ohio manufacturing facility during the second quarter of fiscal 2017. Divestiture gain totaled $201 million, primarily from the sale of our Green Giant product lines during the second quarter of fiscal 2016.
Restructuring,impairment,andotherexitcosts totaled $165$7 million in the nine-monthsix-month period ended FebruaryNovember 26, 2017, compared to $138$88 million in the same period last year.
Total charges associated with our restructuring initiatives consisted of the following:
Nine-Month Period Ended | Fiscal 2016 and 2015 | Estimated | ||||||||||||||||||||||||||||||||||||||||||
Feb. 26, 2017 | Feb. 28, 2016 | Total | Future | Total | ||||||||||||||||||||||||||||||||||||||||
In Millions | Charge | Cash | Charge | Cash | Charge | Cash | Charge | Cash | Charge | Cash | Savings (b) | |||||||||||||||||||||||||||||||||
Global reorganization | $ | 73.1 | $ | 9.2 | $ | — | $ | — | $ | — | $ | — | $ | 7 | $ | 71 | $ | 80 | $ | 80 | ||||||||||||||||||||||||
Closure of Melbourne, Australia plant | 17.7 | 0.1 | — | — | — | — | 16 | — | 34 | — | ||||||||||||||||||||||||||||||||||
Restructuring of certain international product lines | 45.6 | 10.6 | — | — | — | — | — | (7 | ) | 38 | 4 | |||||||||||||||||||||||||||||||||
Closure of Vineland, New Jersey plant | 35.6 | 1.5 | — | — | — | — | 30 | 16 | 65 | 18 | ||||||||||||||||||||||||||||||||||
Project Compass | (0.4 | ) | 11.4 | 52.8 | 29.1 | 54.7 | 36.1 | — | 7 | 55 | 55 | |||||||||||||||||||||||||||||||||
Project Century | 37.2 | 29.5 | 155.1 | 38.0 | 364.4 | 46.3 | 15 | 66 | 417 | 142 | ||||||||||||||||||||||||||||||||||
Project Catalyst | — | 1.1 | (8.7 | ) | 46.9 | 140.9 | 92.8 | — | 25 | 141 | 94 | |||||||||||||||||||||||||||||||||
Combination of certain operational facilities | (0.5 | ) | 3.7 | — | 2.2 | 13.3 | 11.0 | — | — | 13 | 15 | |||||||||||||||||||||||||||||||||
Total restructuring charges (a) | 208.3 | 67.1 | 199.2 | 116.2 | 573.3 | 186.2 | 68 | 178 | 843 | 408 | ||||||||||||||||||||||||||||||||||
Project-related costs | 36.4 | 40.2 | 39.4 | 37.7 | 70.7 | 64.2 | 17 | 20 | 124 | 124 | ||||||||||||||||||||||||||||||||||
Restructuring charges and project-related costs | $ | 244.7 | $ | 107.3 | $ | 238.6 | $ | 153.9 | $ | 644.0 | $ | 250.4 | $ | 85 | $ | 198 | $ | 967 | $ | 532 | $ | 700 | ||||||||||||||||||||||
As Reported | ||||||||||||||||||||||||||||||||||||||||||||
Six-Month Period Ended | Fiscal 2017, 2016 and 2015 | Estimated | ||||||||||||||||||||||||||||||||||||||||||
In Millions | Nov. 26, 2017 | Nov. 27, 2016 | Total | Future | Total | |||||||||||||||||||||||||||||||||||||||
Charge | Cash | Charge | Cash | Charge | Cash | Charge | Cash | Charge | Cash | Savings (b) | ||||||||||||||||||||||||||||||||||
Global reorganization | $ | 1.4 | $ | 26.7 | $ | — | $ | — | $ | 72.1 | $ | 20.0 | $ | 2 | $ | 29 | $ | 76 | $ | 76 | ||||||||||||||||||||||||
Closure of Melbourne, Australia plant | 4.9 | 3.4 | 12.0 | — | 21.9 | 1.6 | 7 | (2 | ) | 34 | 3 | |||||||||||||||||||||||||||||||||
Restructuring of certain international product lines | — | — | 43.3 | 10.4 | 45.1 | 10.3 | (3 | ) | (10 | ) | 42 | — | ||||||||||||||||||||||||||||||||
Closure of Vineland, New Jersey plant | 12.1 | (3.1 | ) | 27.9 | 1.2 | 41.4 | 7.3 | 1 | 7 | 54 | 11 | |||||||||||||||||||||||||||||||||
Project Compass | (0.2 | ) | 3.0 | 1.0 | 8.0 | 54.3 | 48.9 | — | 2 | 54 | 54 | |||||||||||||||||||||||||||||||||
Project Century | 1.5 | (3.4 | ) | 30.1 | 20.6 | 408.4 | 95.5 | 4 | 51 | 414 | 143 | |||||||||||||||||||||||||||||||||
Project Catalyst | — | — | — | 0.5 | 140.9 | 94.1 | — | — | 141 | 94 | ||||||||||||||||||||||||||||||||||
Combination of certain operational facilities | — | 0.5 | — | 2.6 | 13.3 | 16.3 | 2 | (3 | ) | 15 | 14 | |||||||||||||||||||||||||||||||||
Total restructuring charges (a) | 19.7 | 27.1 | 114.3 | 43.3 | 797.4 | 294.0 | 13 | 74 | 830 | 395 | ||||||||||||||||||||||||||||||||||
Project-related costs | 5.4 | 5.0 | 24.9 | 28.6 | 114.6 | 111.1 | 8 | 14 | 128 | 130 | ||||||||||||||||||||||||||||||||||
Restructuring charges and project-related costs | $ | 25.1 | $ | 32.1 | $ | 139.2 | $ | 71.9 | $ | 912.0 | $ | 405.1 | $ | 21 | $ | 88 | $ | 958 | $ | 525 | $ | 700 |
(a) | Includes |
(b) | Cumulative annual savings versus fiscal 2015 base targeted by fiscal 2018. Includes savings from SG&A cost reduction projects. |
For further information on these restructuring initiatives, please refer to Note 3 to the Consolidated Financial Statements in Part 1, Item 1 of this report.
Interest,netfor the nine-monthsix-month period ended FebruaryNovember 26, 2017, totaled $226decreased $2 million flatto $147 million compared to the same period of fiscal 2016.2017, primarily driven by lower rates and changes in the mix of debt, partially offset by higher average debt balances.
Theeffectivetaxratefor the nine-monthsix-month period ended FebruaryNovember 26, 2017, was 29.533.4 percent compared to 34.331.9 percent for the nine-monthsix-month period ended February 28,November 27, 2016. The 4.81.5 percentage point decreaseincrease was primarily due to significantnon-deductible expenses related to the Green Giant divestiturea $42 million prior year adjustment recorded in the second quarter of fiscal 2016, as well as favorable impacts2018 (see Note 1 to the Consolidated Financial Statements in Part 1, Item 1 of Frenchthis report), partially offset by the prospective adoption of the new accounting standard related to windfall tax legislation and other favorable discrete tax items that occurred duringbenefits from stock-based payments (see Note 16 to the third quarterConsolidated Financial Statements in Part 1, Item 1 of fiscal 2017.this report). Our effective tax rate excluding certain items affecting comparability was 29.829.9 percent forin the nine-monthsix-month period ended FebruaryNovember 26, 2017, compared to 31.9 percent in the nine-monthsame period ended February 28, 2016last year (see the“Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).
The United States Congress is currently working on enacting a tax reform bill, which would result in significant changes to the U.S. tax system. We expect that if a bill is enacted, it could have a material impact on our Consolidated Financial Statements in future periods. We continue to monitor developments and assess the impact to General Mills.
After-taxearningsfromjointventures decreased $6 million to $48 million for the nine-monthsix-month period ended FebruaryNovember 26, 2017, were $65 million, flatcompared to the same period in fiscal 2016, as2017, primarily driven by higher input costs partially offset by favorable foreign currency exchange and lower input costs for HDJ were offset by an assetwrite-offCPW, and unfavorable foreign currency exchange and higher input costs partially offset by favorable product mix for CPW.HDJ. On a constant-currency basis,after-tax earnings from joint ventures decreased 3
28
11 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:
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Six-month Period Ended November 26, 2017 vs. Six-month Period Ended November 27, 2016 | CPW | HDJ | ||||||
Contributions from volume growth (a) | Flat | 5 | pts | |||||
Net price realization and mix | Flat | (1 | )pt | |||||
Foreign currency exchange | 3 | pts | (7 | )pts | ||||
Net sales growth | 3 | pts | (3 | )pts |
(a) | Measured in tons based on the stated weight of our product shipments. |
The change in net sales for each joint venture on a constant-currency basis is set forth in the following table:
Nine-Month Period Ended February 26, 2017 | Six-Month Period Ended November 26, 2017 | |||||||||||||||||||||||
Percentage Change in Joint Venture Net Sales as Reported | Impact of Foreign Currency Exchange | Percentage Change in Joint Venture Net Sales on Constant- Currency Basis | Percentage Change in Joint Venture Net Sales as Reported | Impact of Foreign Currency Exchange | Percentage Change in Joint Venture Net Sales on Constant- Currency Basis | |||||||||||||||||||
CPW | (1 | )% | (4) pts | 3 | % | 3 | % | 3 | pts | Flat | ||||||||||||||
HDJ | 17 | % | 12 pts | 5 | % | (3 | )% | (7 | )pts | 4 | % | |||||||||||||
Joint Ventures | 2 | % | (1) pt | 3 | % | 2 | % | 1 | pt | 1 | % | |||||||||||||
Averagedilutedsharesoutstandingdecreased by 1122 million in the nine-monthsix-month period ended FebruaryNovember 26, 2017, compared to the same period a year ago due to the impact of share repurchases, partially offset by option exercises.
SEGMENT OPERATING RESULTS
In the third quarter of fiscal 2017, we announced a new global organization structure to streamline our leadership, enhance global scale, and drive improved operational agility to maximize our growth capabilities. As a result of this global reorganization, beginning in the third quarter of fiscal 2017, we are reporting results for our four operating segments as follows: North America Retail; Convenience Stores & Foodservice; Europe & Australia; and Asia & Latin America. We have restated our net sales by segment and segment operating profit amounts to reflect our new operating segments. These segment changes had no effect on previously reported consolidated net sales, operating profit, net earnings attributable to General Mills, or earnings per share.
Our North America Retail operating segment consists of our former U.S. Retail operating units and our Canada region. Within our North America Retail operating segment, our former U.S. Meals operating unit and U.S. Baking operating unit have been combined into one operating unit: U.S. Meals & Baking. Our Europe & Australia operating segment consists of our former Europe region. Our Asia & Latin America operating segment consists of our former Asia/Pacific and Latin America regions. Our Convenience Stores & Foodservice operating segment was unchanged. For further information on our operating segments, please refer to Note 15 to the Consolidated Financial Statements in Part 1, Item 1 of this report.
North America Retail Segment Results
North America Retail net sales were as follows:
Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||
Feb. 26, 2017 | Feb. 26, 2017 vs Feb. 28, 2016 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 26, 2017 vs Feb. 28, 2016 | Feb. 28, 2016 | |||||||||||||||||||
Net sales (in millions) | $ | 2,499.0 | (7) % | $ | 2,686.6 | $ | 7,804.8 | (8) % | $ | 8,460.7 | ||||||||||||||
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Contributions from volume growth (a) |
| (9) pts | (12) pts | |||||||||||||||||||||
Foreign currency exchange | Flat | Flat | ||||||||||||||||||||||
Net price realization and mix | 2 pts | 4 pts | ||||||||||||||||||||||
Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||
Nov. 26, 2017 | Nov. 26, 2017 vs Nov. 27, 2016 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 26, 2017 vs Nov. 27, 2016 | Nov. 27, 2016 | |||||||||||||||||||
Net sales (in millions) | $ | 2,771.8 | 1 | % | $ | 2,748.8 | $ | 5,210.0 | (2 | )% | $ | 5,305.8 | ||||||||||||
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Contributions from volume growth (a) | 1 | pt | (1 | )pt | ||||||||||||||||||||
Net price realization and mix | (1 | )pt | (1 | )pt | ||||||||||||||||||||
Foreign currency exchange | 1 | pt | Flat | |||||||||||||||||||||
(a) | Measured in tons based on the stated weight of our product shipments. |
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The 71 percent decreaseincrease in North America Retail net sales in the second quarter of fiscal 2018 was driven by growth in the U.S. Cereal, Canada and U.S. Snacks operating units partially offset by declines in the U.S. Yogurt and U.S. Meals & Baking operating units.
The 2 percent decrease in net sales for the quartersix-month period ended FebruaryNovember 26, 2017, was driven by declines in the U.S. Yogurt and U.S. Meals & Baking U.S. Yogurt, U.S. Snacks, and U.S. Cereal operating units partially offset by growth in the Canada operating unit.
The 8 percent decline in North America Retail net sales for the nine-month period ended February 26, 2017 was driven by declines in theand U.S. Meals & Baking, U.S. Yogurt, U.S. Cereal, and CanadaSnacks operating units. The decline in net sales also includes the impact of the Green Giant divestiture from the U.S. Meals & Baking and Canada operating units in fiscal 2016.
The components of North America Retail organic net sales growth are shown in the following table:
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Quarter Ended | Six-Month Period Ended | |||||||
Nov. 26, 2017 | Nov. 26, 2017 | |||||||
Contributions from organic volume growth (a) | 1 | pt | (1 | )pt | ||||
Organic net price realization and mix | (1 | )pt | (1 | )pt | ||||
Organic net sales growth | Flat | (2 | )pts | |||||
Foreign currency exchange | 1 | pt | Flat | |||||
Net sales growth | 1 | pt | (2 | )pts | ||||
(a) | Measured in tons based on the stated weight of our product shipments. |
North America Retail organic net sales were flat in the three-month period ended November 26, 2017, compared to the same period in fiscal 2017.
North America Retail organic net sales decreased 82 percentage points forin the quarter ended February 26, 2017 and decreased 6 percentage points for the nine-monthsix-month period ended FebruaryNovember 26, 2017, compared to the same periodsperiod in fiscal 2017, driven primarily by volume declines in the prior year, which reflectU.S. Yogurt operating unit partially offset by increases in the impact of reduced marketingU.S. Snacks and trade supportU.S. Cereal operating units, and increased competition in key categories.trade expense.
North America Retail net sales percentage change by operating unit are shown in the following table:
Quarter Ended | Nine-Month Period Ended | |||||||
Feb. 26, 2017 | Feb. 26, 2017 | |||||||
U.S. Meals & Baking | (10 | )% | (12 | )% | ||||
U.S. Yogurt | (20 | ) | (17 | ) | ||||
U.S. Snacks | (4 | ) | Flat | |||||
U.S. Cereal | (1 | ) | (3 | ) | ||||
Canada (a) | 4 | (3 | ) | |||||
Total | (7 | )% | (8 | )% | ||||
Quarter Ended | Six-Month Period Ended | |||||||
| Nov. 26, 2017 | Nov. 26, 2017 | ||||||
U.S. Cereal | 7 | % | Flat | |||||
Canada (a) | 7 | 3 | ||||||
U.S. Snacks | 5 | 1 | ||||||
U.S. Meals & Baking | (2 | ) | (1 | ) | ||||
U.S. Yogurt | (11 | ) | (17 | ) | ||||
Total | 1 | % | (2 | )% | ||||
(a) | On a constant currency basis, Canada net sales |
Segment operating profit decreased 74 percent to $517$623 million in the thirdsecond quarter of fiscal 20172018 compared to $553$651 million in the same period of fiscal 2016,2017, driven primarily driven by volume declines, partially offset by a decline in mediaunfavorable trade expense phasing and advertising expense and benefits from cost savings initiatives.higher input costs. Segment operating profit decreased 75 percent on a constant-currency basis in the thirdsecond quarter of fiscal 20172018 compared to the thirdsecond quarter of fiscal 20162017 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Segment operating profit decreased 510 percent to $1,796$1,156 million in the nine-month periodsix-months ended FebruaryNovember 26, 2017, compared to $1,886$1,279 million in the same period of fiscal 2016,2017, driven primarily driven by volume declines, currency-driven inflation on products imported into Canada,lower net sales, including unfavorable trade expense phasing and the impact of the Green Giant divestiture, partially offset by a decrease in SG&A expenses, including a decline in media and advertising expense and benefits from cost savings initiatives.higher input costs. Segment operating profit for the nine-month period ended February 26, 2017, decreased 510 percent on a constant-currency basis in the first six months of fiscal 2018 compared to the same periodfirst six months of fiscal 20162017 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
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Convenience Stores & Foodservice Segment Results
Convenience Stores & Foodservice net sales were as follows:
Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||
Feb. 26, 2017 | Feb. 26, 2017 vs Feb. 28, 2016 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 26, 2017 vs Feb. 28, 2016 | Feb. 28, 2016 | |||||||||||||||||||
Net sales (in millions) | $ | 448.5 | (1) % | $ | 453.7 | $ | 1,382.3 | (4) % | $ | 1,437.2 | ||||||||||||||
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Contributions from volume growth (a) | 1 pt | Flat | ||||||||||||||||||||||
Net price realization and mix | (2) pts | (4) pts | ||||||||||||||||||||||
Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||
Nov. 26, 2017 | Nov. 26, 2017 vs Nov. 27, 2016 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 26, 2017 vs Nov. 27, 2016 | Nov. 27, 2016 | |||||||||||||||||||
Net sales (in millions) | $ | 512.2 | 5 | % | $ | 487.5 | $ | 959.3 | 3 | % | $ | 933.8 | ||||||||||||
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Contributions from volume growth (a) | 3 | pts | 2 | pts | ||||||||||||||||||||
Net price realization and mix | 2 | pts | 1 | pt | ||||||||||||||||||||
(a) | Measured in tons based on the stated weight of our product shipments. |
The 1 percent decline in Convenience Stores & Foodservice net sales inincreased 5 percent for the thirdsecond quarter of fiscal 2017 was driven by a decline innon-Focus 6 platforms, partially offset by an increase in the2018, reflecting higher net sales across Focus 6 platforms.categories and benefits from market index pricing on bakery flour.
The 4 percent decline in Convenience Stores & Foodservice net sales inincreased 3 percent for the nine-monthsix-month period ended FebruaryNovember 26, 2017, was driven primarily byreflecting higher net sales across Focus 6 categories and benefits from market index pricing on bakery flour, partially offset by an increase in the Focus 6 platforms.flour.
The components of Convenience Stores & Foodservice organic net sales growth are shown in the following table:
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Quarter Ended | Six-Month Period Ended | |||||||
Nov. 26, 2017 | Nov. 26, 2017 | |||||||
Contributions from organic volume growth (a) | 3 | pts | 2 | pts | ||||
Organic net price realization and mix | 2 | pts | 1 | pt | ||||
Organic net sales growth | 5 | pts | 3 | pts | ||||
Net sales growth | 5 | pts | 3 | pts | ||||
(a) | Measured in tons based on the stated weight of our product shipments. |
Segment operating profit increased 3declined 2 percent to $94$106 million in the thirdsecond quarter of fiscal 2018 compared to $109 million in the second quarter of fiscal 2017, compared to $91 million in the third quarter of fiscal 2016. The increase was primarily driven by benefits from cost savings initiatives and lowerhigher input costs.costs, partially offset by higher net sales.
Segment operating profit increased by 8decreased 5 percent to $295$191 million for the nine-monthsix-month period ended FebruaryNovember 26, 2017, from $273compared to $202 million in the same period last year. The increase wasof fiscal 2017, primarily driven by benefits from cost savings initiatives, lowerhigher input costs, andpartially offset by higher grain merchandise earnings.net sales.
Europe & Australia Segment Results
Europe & Australia net sales were as follows:
Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||
Feb. 26, 2017 | Feb. 26, 2017 vs. Feb. 28, 2016 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 26, 2017 vs. Feb. 28, 2016 | Feb. 28, 2016 | |||||||||||||||||||
Net sales (in millions) | $ | 424.5 | (3) % | $ | 439.4 | $ | 1,338.0 | (7) % | $ | 1,431.3 | ||||||||||||||
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Contributions from volume growth (a) | 1 pt | (3) pts | ||||||||||||||||||||||
Net price realization and mix | 1 pt | 1 pt | ||||||||||||||||||||||
Foreign currency exchange | (5) pts | (5) pts | ||||||||||||||||||||||
Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||
Nov. 26, 2017 | Nov. 26, 2017 vs. Nov. 27, 2016 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 26, 2017 vs. Nov. 27, 2016 | Nov. 27, 2016 | |||||||||||||||||||
Net sales (in millions) | $ | 466.7 | 7 | % | $ | 435.1 | $ | 958.6 | 5 | % | $ | 913.5 | ||||||||||||
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Contributions from volume growth (a) | 1 | pt | Flat | |||||||||||||||||||||
Net price realization and mix | Flat | 2 | pts | |||||||||||||||||||||
Foreign currency exchange | 6 | pts | 3 | pts | ||||||||||||||||||||
(a) | Measured in tons based on the stated weight of our product shipments. |
The 37 percent declineincrease in Europe & Australia net sales forin the thirdsecond quarter of fiscal 20172018 was driven by unfavorablefavorable foreign currency exchange partially offset by favorableand higher net price realization and mix and contributions from volume growth.sales in the U.K. market.
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The 75 percent declineincrease in Europe & Australia net sales forin the nine-monthsix-month period ended FebruaryNovember 26, 2017, was driven by unfavorablefavorable foreign currency exchange and contributions from volume growth, partially offset by favorablehigher net price realization and mix.sales in the U.K. market.
The components of Europe & Australia organic net sales growth are shown in the following table:
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Quarter Ended | Six-Month Period Ended | |||||||
Nov. 26, 2017 | Nov. 26, 2017 | |||||||
Contributions from organic volume growth (a) | 1 | pt | Flat | |||||
Organic net price realization and mix | Flat | 2 | pts | |||||
Organic net sales growth | 1 | pt | 2 | pts | ||||
Foreign currency exchange | 6 | pts | 3 | pts | ||||
Net sales growth | 7 | pts | 5 | pts | ||||
(a) | Measured in tons based on the stated weight of our product shipments. |
The 1 percent increase in Europe & Australia organic net sales growth in the second quarter of fiscal 2018 was driven by favorable contributions from organic volume growth.
The 2 percent increase in Europe & Australia organic net sales growth forin the third quarter of fiscalsix-month period ended November 26, 2017 was driven by a 1 percentage point increase from contributions from organic volume growth and a 1 percentage point increase fromfavorable organic net price realization.realization and mix.
The 2 percent decrease in Europe & Australia organic net sales growth for the nine-month period ended February 26, 2017 was primarily driven by a 3 percentage point decline from contributions from organic volume growth, which primarily reflects increased competition in key categories.
Segment operating profit increased 25decreased 35 percent to $42$27 million in the thirdsecond quarter of fiscal 20172018 compared to $34$41 million in the same period of fiscal 2016. These results were2017 primarily driven by favorable mix and benefits from cost savings initiatives, partially offset by unfavorable foreign currency exchange and input cost inflation. Europe & Australia segment operating profit increased 39 percent on a constant-currency basis in the third quarter of fiscal 2017 compared to the third quarter of fiscal 2016 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Segment operating profit decreased 12 percent to $127 million in the nine-month period ended February 26, 2017, compared to $144 million in the same period of fiscal 2016. These results were primarily driven by unfavorable foreign currency exchange and input cost inflation, including currency-driven inflation on imported products in certain markets. Europe & Australia segment operating profit for the nine-month period ended February 26, 2017, decreased 340 percent on a constant-currency basis in the second quarter of fiscal 2018 compared to the same periodsecond quarter of fiscal 20162017 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Segment operating profit decreased 32 percent to $58 million in thesix-month period ended November 26, 2017, compared to $85 million in the same period of fiscal 2017 primarily driven by input cost inflation, including currency-driven inflation on imported products in certain markets. Europe & Australia segment operating profit decreased 35 percent on a constant-currency basis in thesix-month period ended November 26, 2017, compared to the same period of fiscal 2017 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Asia & Latin America Segment Results
Asia & Latin America net sales were as follows:
Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||
Feb. 26, 2017 | Feb. 26, 2017 vs. Feb. 28, 2016 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 26, 2017 vs. Feb. 28, 2016 | Feb. 28, 2016 | |||||||||||||||||||
Net sales (in millions) | $ | 421.2 | Flat | $ | 422.7 | $ | 1,288.1 | (1) % | $ | 1,306.0 | ||||||||||||||
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Contributions from volume growth (a) | Flat | Flat | ||||||||||||||||||||||
Net price realization and mix | (3) pts | Flat | ||||||||||||||||||||||
Foreign currency exchange | 3 pts | (1) pt | ||||||||||||||||||||||
Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||
Nov. 26, 2017 | Nov. 26, 2017 vs. Nov. 27, 2016 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 26, 2017 vs. Nov. 27, 2016 | Nov. 27, 2016 | |||||||||||||||||||
Net sales (in millions) | $ | 448.0 | 2 | % | $ | 440.7 | $ | 840.0 | (3 | )% | $ | 866.9 | ||||||||||||
Contributions from volume growth (a) | (7 | )pts | (12 | )pts | ||||||||||||||||||||
Net price realization and mix | 7 | pts | 8 | pts | ||||||||||||||||||||
Foreign currency exchange | 2 | pts | 1 | pt | ||||||||||||||||||||
(a) | Measured in tons based on the stated weight of our product shipments. |
Asia & Latin America net sales were flatincreased 2 percent in the thirdsecond quarter of fiscal 20172018 compared to the same period in the prior year, as favorable foreign currency exchange and the impact of the acquisition of Laticinios Carolina Ltda. (Carolina) in fiscal 2016 werewith higher net sales across Asia markets partially offset by the impact of the divestitures of our Venezuela subsidiary and Argentina foodservice business in fiscal 2016.lower net sales across Latin America markets.
Asia & Latin America net sales declined 13 percent in the nine-monthsix-month period ended FebruaryNovember 26, 2017, primarily drivencompared to the same period of fiscal 2017, which reflects lower net sales in Latin America markets due to the shift in reporting period in fiscal 2017 and challenges related to an enterprise reporting system implementation at our General Mills Brasil Alimentos Ltda subsidiary, partially offset by unfavorable foreign currency exchange.higher net sales in Asia markets.
32
The components of Asia & Latin America organic net sales growth are shown in the following table:
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Quarter Ended | Six-Month Period Ended | |||||||
Nov. 26, 2017 | Nov. 26, 2017 | |||||||
Contributions from organic volume growth (a) | (7 | )pts | (12 | )pts | ||||
Organic net price realization and mix | 7 | pts | 8 | pts | ||||
Organic net sales growth | Flat | (4 | )pts | |||||
Foreign currency exchange | 2 | pts | 1 | pt | ||||
Net sales growth | 2 | pts | (3 | )pts | ||||
(a) | Measured in tons based on the stated weight of our product shipments. |
Asia & Latin America organic net sales were flat for the quarter ended November 26, 2017, reflecting a 7 percent decrease in contributions from organic volume growth offset by a 7 percent increase in organic net price realization and mix.
The 24 percent decrease in Asia & Latin America organic net sales for the quartersix-month period ended FebruaryNovember 26, 2017, was primarily driven by a 3 percentage point decline12 percent decrease in contributions from organic volume which reflects the impact of macro-economic challenges in Latin America and the restructuring of our snacks business in China.
The 1growth, partially offset by an 8 percent increase in Asia & Latin America organic net sales for the nine-month period ended February 26, 2017 was primarily driven by a 5 percentage point increase from organic net price realization and mix primarily driven by pricing actions in the Latin America region, partially offset by a 4 percentage point decline in contributions from organic volume which reflects the impact of macro-economic challenges in Latin America and the restructuring of our snacks business in China.mix.
Segment operating profit increaseddecreased 42 percent to $10$17 million in the thirdsecond quarter of fiscal 20172018 compared to $2$29 million in the same period of fiscal 2016. Segment operating profit increased 45 percent to $61 million in the nine-month period ended February 26, 2017 compared to $42 million in the same period of fiscal 2016. These results were primarily driven by favorable foreigninput cost inflation, including currency exchange, including currency-driven deflationdriven inflation on imported raw materialsproducts in certain markets, and the impact of the divestituresan increase in fiscal 2016.media and advertising expense. Asia & Latin America segment operating profit increased 316decreased 46 percent on a constant-currency basis in the thirdsecond quarter of fiscal 20172018 compared to the thirdsecond quarter of fiscal 2016, and increased 48 percent on a constant-currency basis in the nine-month period ended February 26, 2017 compared to the same period in fiscal 2016 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Segment operating profit decreased 37 percent to $32 million in thesix-month period ended November 26, 2017, compared to $51 million in the same period of fiscal 2017 primarily driven by input cost inflation, including currency driven inflation on imported products in certain markets. Asia & Latin America segment operating profit decreased 40 percent on a constant-currency basis in the first six months of fiscal 2018 compared to the first six months of fiscal 2017 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
UNALLOCATED CORPORATE ITEMS
Unallocated corporate expense totaled $42 million in the thirdsecond quarter of fiscal 20172018 compared to $78$19 million in the same period in fiscal 2016.2017. In the thirdsecond quarter of fiscal 2017,2018, we recorded $16$1 million of restructuring charges and $12$4 million of restructuring initiative project-related costs in cost of sales compared to $17$13 million of restructuring charges and $10$11 million of restructuring initiative project-related costs in cost of sales in the same period last year. In addition, we recorded an $8a $4 million net decrease in expense related to themark-to-market valuation of certain commodity positions and grain inventories in the thirdsecond quarter of fiscal 20172018 compared to a $7$29 million net increasedecrease in expense in the same period last year. We also recorded a decrease in incentive expense in the third quarter of fiscal 2017 compared to the same period last year.
Unallocated corporate expense totaled $144$75 million in the nine-monthsix-month period ended FebruaryNovember 26, 2017, compared to $232$101 million in the same period last year. In the nine-monthsix-month period ended FebruaryNovember 26, 2017, we recorded $43$13 million of restructuring charges and $36$5 million of restructuring initiative project-related costs in cost of sales compared to $61$26 million of restructuring charges and $39$25 million of restructuring initiative project-related costs in cost of sales in the same period last year. In addition, we recorded a $21$6 million net decrease in expense related to themark-to-market valuation of certain commodity positions and grain inventories in the nine-monthsix-month period ended FebruaryNovember 26, 2017, compared to a $3$12 million net decrease in expense in the same period a year ago. We also recorded a decrease in incentive expense in
LIQUIDITY
During the nine-monthsix-month period ended February 26, 2017, compared to the same period last year.
LIQUIDITY
During the nine-month period ended FebruaryNovember 26, 2017, cash provided by operations was $1,559$1,567 million compared to $1,862$1,079 million in the same period last year. The $303$488 million decreaseincrease is primarily driven by a $610$703 million change in current assets and liabilities. The $610$703 million change in current assets and liabilities is primarily due to changes in the timing of accounts payable, including the impact of extended payment terms, and changes in other current liabilities, which were largely driven by changes in trade and advertising accruals due to reduced spending and income taxes payable primarily related to the Green Giant divestiture in fiscal 2016. Additionally, we recorded a $14 million loss on a divestiture during the nine-month period ended February 26, 2017 compared to a $201 million gain on divestiture during the same period last year and classified the related cash flows as investing activities. incentive accruals.
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Cash used by investing activities during the nine-monthsix-month period ended FebruaryNovember 26, 2017, was $424$271 million, compared to cash providedused by investing activities of $335$280 million in the same period in fiscal 2016.2017. Investments of $475$260 million in land, buildings and equipment in the nine-monthsix-month period ended FebruaryNovember 26, 2017, decreased $3$58 million compared to the same period a year ago. Additionally, we recordedWe received proceeds of $823$18 million related to the sale of our Green Giant product lines duringMartel, Ohio facility in the nine-month period ended 2016.second quarter of fiscal 2017. In addition, we received the final payment of $13 million from Sodiaal International (Sodiaal) in the first six months of fiscal 2017 to fully repay the exchangeable note we purchased in fiscal 2012.
Cash used by financing activities during the nine-monthsix-month period ended FebruaryNovember 26, 2017, was $983$1,131 million compared to $1,720$720 million in the same period last year. We had $1,428$53 million of net debt issuances in the first ninesix months of fiscal 20172018 compared to $403$1,164 million of net debt paymentsissuances in the same period a year ago. We paid $1,651$600 million in cash to repurchase common stock and paid $856$565 million of dividends in the first nine monthssix-months of fiscal 20172018 compared to $602$1,350 million and $795$576 million, respectively, in the same period last year.
As of FebruaryNovember 26, 2017, we had $862$898 million of cash and cash equivalents held in foreign jurisdictions which will be used to fund foreign operations and potential acquisitions. There is currently no need to repatriate these funds in order to meet domestic funding obligations or scheduled cash distributions. If we choose to repatriate historical earnings from foreign jurisdictions, we intend to do so only in atax-neutral manner.
CAPITAL RESOURCES
Our capital structure was as follows:
In Millions | Feb. 26, 2017 | May 29, 2016 | Nov. 26, 2017 | May 28, 2017 | ||||||||||||
Notes payable | $ | 1,942.0 | $ | 269.8 | $ | 1,298.0 | $ | 1,234.1 | ||||||||
Current portion of long-term debt | 604.7 | 1,103.4 | 200.5 | 604.7 | ||||||||||||
Long-term debt | 7,176.4 | 7,057.7 | 8,228.3 | 7,642.9 | ||||||||||||
Total debt | 9,723.1 | 8,430.9 | 9,726.8 | 9,481.7 | ||||||||||||
Redeemable interest | 869.2 | 845.6 | 793.4 | 910.9 | ||||||||||||
Noncontrolling interests | 340.1 | 376.9 | 359.0 | 357.6 | ||||||||||||
Stockholders’ equity | 4,063.4 | 4,930.2 | 4,230.7 | 4,327.9 | ||||||||||||
Total capital | $ | 14,995.8 | $ | 14,583.6 | $ | 15,109.9 | $ | 15,078.1 | ||||||||
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 committed, 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 FebruaryNovember 26, 2017:
In Billions | Facility Amount | Borrowed Amount | Facility Amount | Borrowed Amount | ||||||||||||
Credit facility expiring: | ||||||||||||||||
May 2021 | $ | 2.7 | $ | — | ||||||||||||
May 2022 | $ | 2.7 | $ | — | ||||||||||||
June 2019 | 0.2 | 0.2 | 0.2 | 0.1 | ||||||||||||
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| |||||||||||||||
Total committed credit facilities | 2.9 | 0.2 | 2.9 | 0.1 | ||||||||||||
Uncommitted credit facilities | 0.5 | 0.1 | 0.5 | 0.2 | ||||||||||||
Total committed and uncommitted credit facilities | $ | 3.4 | $ | 0.3 | $ | 3.4 | $ | 0.3 | ||||||||
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, 2015, the floating preferred return rate on GMC’s Class A Interests was reset to the sum of three-month LIBOR plus 125 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
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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.
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. As of FebruaryNovember 26, 2017, we recorded Sodiaal’s 50 percent interests in Yoplait Marques SNC and Liberté Marques Sàrl as noncontrolling interests, and the redemption value of 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 FebruaryNovember 26, 2017, the redemption value of the redeemable interest was $869$793 million, which approximates its fair value.
Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of FebruaryNovember 26, 2017, we were in compliance with all of these covenants.
We have $605$200 million of long-term debt maturing in the next 12 months that is classified as current, including $500 million of 1.4 percent notes due October 2017 and $100 million of 6.39 percent fixed rate medium term notes due for remarketing in February 2018 and $100 million of 6.59 percent fixed rate medium term notes due for remarketing in October 2018. 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.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There were no material changes outside the ordinary course of our business in our contractual obligations oroff-balance sheet arrangements during the thirdsecond quarter of fiscal 2017.2018.
SIGNIFICANT ACCOUNTING ESTIMATES
Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in our Annual Report on Form10-K for the fiscal year ended May 29, 2016.28, 2017. The accounting policies used in preparing our interim fiscal 20172018 Consolidated Financial Statements are the same as those described in our Form10-K.10-K with the exception of the new accounting requirements adopted in the first quarter of fiscal 2018 for stock-based payments and goodwill impairment testing. See Note 16 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information.
Our significant accounting estimates are those that have 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. The assumptions and methodologies used in the determination of those estimates as of FebruaryNovember 26, 2017, are the same as those described in our Annual Report on Form10-K for the fiscal year ended May 29, 2016, except as described28, 2017, with the exception of the new accounting requirements adopted in the first quarter of fiscal 2018 for stock-based payments and goodwill impairment testing. See Note 1416 to the Consolidated Financial Statements in Part I, Item 1 of this report.
During the third quarter of fiscal 2017, we announced a new global organization structure to streamline our leadership, enhance global scale, and drive improved operational agility to maximize our growth capabilities. As a result of this global reorganization, we reassessed our operating segments as well as our reporting units. Under our new organization structure, our chief operating decision maker assesses performance and makes decisions about resources to be allocated to our segments at the North America Retail, Convenience Stores & Foodservice, Europe & Australia, and Asia & Latin America operating segment level. See Note 15 to the Consolidated Financial Statements in Part 1, Item 1 of this report for additional informationinformation.
We tested our goodwill and indefinite-lived intangible assets for impairment on our operating segments. Our reporting units were unchanged with the exception of combining our former U.S. Meals and U.S. Baking reporting units into a single reporting unit.
Our annual goodwill intangible asset test was performedassessment date on the first day of the second quarter of fiscal 2017 and we determined2018. As of our annual impairment assessment date, there was no impairment of our goodwill intangible assets as their related fair values were substantially in excess of the carrying values, except for theYoki andProgresso brand intangible assets and the Latin America reporting unit. We did not consider the new organization structure to be a triggering event requiring a subsequent goodwill impairment test as our reporting units remain unchanged, with the exception of combining the former U.S. Meals and U.S. Baking reporting units.
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Our indefinite-lived intangible asset test was performed on the first day of the second quarter of fiscal 2017. As of the assessment date, there was no impairment of any of our indefinite-lived intangible assets as their related fair values were substantially in excess of the carrying values, except for theImmaculate Baking brand intangible asset.
The excess fair value aboveas of the carrying valuefiscal 2018 test date of theYoki andProgresso brand intangible assets and the Latin America reporting unit and theImmaculate Baking brand intangible asset iswas as follows:
In Millions | Carrying Value | Excess Fair Value Above Carrying Value | Carrying Value of Intangible Asset | Excess Fair Value as of Fiscal 2018 Test Date | ||||||||||||
Yoki | $ | 138.2 | 1 | % | ||||||||||||
Progresso | 462.1 | 6 | % | |||||||||||||
Latin America | $ | 523.0 | 15 | % | $ | 272.0 | 21 | % | ||||||||
Immaculate Baking | $ | 12.0 | 17 | % | ||||||||||||
In addition, while having significant coverage as of our fiscal 20172018 assessment date, the ProgressoFood,ShouldTasteGood andGreenGiantandFood Should Taste Goodbrand intangible assets and the U.S. Yogurt reporting unit had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In JanuaryAugust 2017, the Financial Accounting Standards Board (FASB) issued new hedge accounting requirements related to goodwill impairment testing.requirements. The new standard eliminatesamends the requirementhedge accounting recognition and presentation requirements to measure a goodwill impairment loss by determiningbetter align an entity’s risk management activities and financial reporting. The new standard also simplifies the implied fair valueapplication of goodwill. Instead, goodwill impairment losses will be measured by the amount by which a reporting unit’s carrying value exceeds the reporting unit’s fair value, limited to the amount of goodwill allocated to the reporting unit.hedge accounting guidance. The requirements of the new standard are effective for annual or any interim goodwill impairment tests in fiscal yearsreporting periods beginning after December 15, 2019,2018, and interim periods within those annual periods, which for us is the first quarter of fiscal 2021.2020. Early adoption is permitted. We intend to adoptare in the process of analyzing the impact of this standard in fiscal 2018 and do not expect this guidance to have a material impact on our results of operations orand financial position.
In March 2017, the FASB issued 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. 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. We recognized net periodic benefit expense of $56 million in fiscal 2017, $163 million in fiscal 2016, and $153 million in fiscal 2015 of which $141 million, $161 million, and $167 million, respectively, related to service cost. These amounts may not necessarily be indicative of future amounts that may be recognized subsequent to the adoption of this new standard. The new standard requires retrospective adoption of the presentation of net periodic benefit expense and prospective application of the capitalization of the service cost component. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods, which for us is the first quarter of fiscal 2019. Early adoption is permitted.
In October 2016, the FASB issued new accounting requirements related to the recognition of income taxes resulting from intra-entity transfers of assets other than inventory. This will result in the recognition of the income tax consequences resulting from the intra-entity transfer of assets in our Consolidated Statements of Earnings in the period of the transfer. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods, which for us is the first quarter of fiscal 2019. Early adoption is permitted. We are in the process of analyzing theBased on our assessment to date, we do not expect this guidance to have a material impact on our results of operations andor financial position.
In March 2016, the FASB issued new accounting requirements for the accounting and presentation of stock-based payments. This will result in realized windfall and shortfall tax benefits upon exercise or vesting of stock-based awards being recorded in our Consolidated Statements of Earnings instead of additionalpaid-in capital within our Consolidated Balance Sheets. In addition, realized windfall and shortfall tax benefits will be reclassified from financing activities to operating activities in our Consolidated Statements of Cash Flows. We recognized windfall tax benefits of $94 million in fiscal 2016, $75 million in fiscal 2015, and $69 million in fiscal 2014. These amounts may not necessarily be indicative of future amounts that may be recognized subsequent to the adoption of this new standard as windfall and shortfall tax benefits are dependent upon future stock prices, employee exercise behavior, and applicable tax rates. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods, which for us is the first quarter of fiscal 2018. Early adoption is permitted.
In February 2016, the FASB issued new accounting requirements for accounting, presentation and classification of leases. This will result in most leases being capitalized as a right of use asset with a related liability on our Consolidated Balance Sheets. 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 are in the process of evaluatingimplementing lease accounting software as well asand analyzing the impact of this standard on our results of operations and financial position. Based on our assessment to date, we expect this guidance will have a material impact on our Consolidated Balance Sheets due to the amount of our lease commitments.
commitments but we are unable to quantify the impact at this time.
In May 2014, the FASB issued new accounting requirements for the recognition of revenue from contracts with customers. The requirements of the new standard and its subsequent amendments are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods, which for us is the first quarter of fiscal 2019. We are in the process of documenting the impact of the guidance on our current accounting policies and practices in order to identify material differences, if any, that would result from applying the new requirements to our revenue contracts. We continue to make progress on our revenue recognition review and are also in the process of evaluating the impact, if any, on changes to our business processes, systems, and controls to support recognition and disclosure requirements under the new guidance. In addition, we continue to assess our adoption approach. Based on our assessment to date, we do not expect this guidance to have a material impact on our results of operations or financial position.
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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 purposes for which we use thenon-GAAP measure. Thesenon-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure.
Our fiscal 2017 outlook for adjusted operating profit margin is anon-GAAP financial measure that excludes, or has otherwise been adjusted for, items impacting comparability, including the effect of restructuring charges, project-related costs,mark-to-market effects, and divestitures. We are not able to reconcile this forward-lookingnon-GAAP financial measure to its most directly comparable forward-looking GAAP financial measure without unreasonable efforts because we are unable to predict with a reasonable degree of certainty the actual impact of changes in commodity prices or the timing of divestitures, and restructuring actions throughout fiscal 2017. The unavailable information could have a significant impact on our fiscal 2017 GAAP financial results.
Organic Net Sales Growth Rates
This measure is used in reporting to our executive management and as a component of the Board of Directors’ measurement of our performance for incentive compensation purposes. We provide organic net sales growth rates for our consolidated net sales and segment net sales. 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 Segment Operating Results discussions in the MD&A above.
Total Segment Operating Profit and Related Constant-Currency Growth Rate
This measure is used in reporting to our executive management and as a component of the Board of Directors’ 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 segment performance. A reconciliation of this measure to operating profit, the relevant GAAP measure, is included in Note 15 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Constant-currency total segment operating profit growth is calculated as follows:
Percentage Change in Total Segment Operating Profit as Reported | Impact of Foreign Currency Exchange | Percentage Change in Total Segment Operating Profit on a Constant-Currency Basis | ||||||||||
Quarter Ended Feb. 26, 2017 | (2 | )% | Flat | (2 | )% | |||||||
Nine-Month Period Ended Feb. 26, 2017 | (3 | )% | (1 | )pt | (2 | )% | ||||||
Percentage Change in Total Segment Operating Profit as Reported | Impact of Foreign Currency Exchange | Percentage Change in Currency Basis | ||||||||||
Quarter Ended Nov. 26, 2017 | (7 | )% | 1 | pt | (8 | )% | ||||||
Six-Month Period Ended Nov. 26, 2017 | (11 | )% | 1 | pt | (12 | )% | ||||||
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Adjusted Operating Profit as a Percent of Net Sales (Adjusted Operating Profit Margin) Excluding Certain Items Affecting Comparability
We believe this measure provides useful information to investors because it is important for assessing our operating profit margin on a comparable basis. The adjustments are either items resulting from infrequently occurring events or items that, in management’s judgment, significantly affect the year-over-year assessment of operating results.
Quarter Ended | ||||||||||||||||
Feb. 26, 2017 | Feb. 28, 2016 | |||||||||||||||
In Millions | Value | Percent of Net Sales | Value | Percent of Net Sales | ||||||||||||
Operating profit as reported | $ | 542.5 | 14.3% | $ | 586.3 | 14.6% | ||||||||||
Mark-to-market effects (a) | (8.2 | ) | (0.2)% | 7.3 | 0.2% | |||||||||||
Restructuring charges (b) | 94.0 | 2.5% | 34.2 | 0.8% | ||||||||||||
Project-related costs (b) | 11.5 | 0.3% | 10.1 | 0.3% | ||||||||||||
Divestitures loss (gain) (c) | — | —% | (1.5 | ) | —% | |||||||||||
Adjusted operating profit | $ | 639.8 | 16.9% | $ | 636.4 | 15.9% | ||||||||||
Nine-Month Period Ended | ||||||||||||||||
Feb. 26, 2017 | Feb. 28, 2016 | |||||||||||||||
In Millions | Value | Percent of Net Sales | Value | Percent of Net Sales | ||||||||||||
Operating profit as reported | $ | 1,957.2 | 16.6% | $ | 2,175.3 | 17.2% | ||||||||||
Mark-to-market effects (a) | (20.7 | ) | (0.2)% | (3.1 | ) | —% | ||||||||||
Restructuring costs (b) | 208.3 | 1.8% | 199.2 | 1.6% | ||||||||||||
Project-related costs (b) | 36.4 | 0.3% | 39.4 | 0.3% | ||||||||||||
Divestitures loss (gain) (c) | 13.5 | 0.1% | (200.6 | ) | (1.6)% | |||||||||||
Adjusted operating profit | $ | 2,194.7 | 18.6% | $ | 2,210.2 | 17.5% | ||||||||||
Quarter Ended | ||||||||||||||||
Nov. 26, 2017 | Nov. 27, 2016 | |||||||||||||||
In Millions | Value | Percent of Net Sales | Value | Percent of Net Sales | ||||||||||||
Operating profit as reported | $ | 729.8 | 17.4 | % | $ | 768.9 | 18.7 | % | ||||||||
Mark-to-market effects (a) | (4.5 | ) | (0.1 | )% | (29.1 | ) | (0.7 | )% | ||||||||
Restructuring charges (b) | 2.2 | — | % | 41.8 | 1.0 | % | ||||||||||
Project-related costs (b) | 4.2 | 0.1 | % | 11.1 | 0.3 | % | ||||||||||
Divestiture loss (c) | — | — | % | 13.5 | 0.3 | % | ||||||||||
Adjusted operating profit | $ | 731.7 | 17.4 | % | $ | 806.2 | 19.6 | % | ||||||||
Six-Month Period Ended | ||||||||||||||||
Nov. 26, 2017 | Nov. 27, 2016 | |||||||||||||||
In Millions | Value | Percent of Net Sales | Value | Percent of Net Sales | ||||||||||||
Operating profit as reported | $ | 1,355.6 | 17.0 | % | $ | 1,414.7 | 17.6 | % | ||||||||
Mark-to-market effects (a) | (6.3 | ) | (0.1 | )% | (12.5 | ) | (0.1 | )% | ||||||||
Restructuring costs (b) | 19.7 | 0.2 | % | 114.3 | 1.4 | % | ||||||||||
Project-related costs (b) | 5.4 | 0.1 | % | 24.9 | 0.3 | % | ||||||||||
Divestiture loss (c) | — | — | % | 13.5 | 0.2 | % | ||||||||||
Adjusted operating profit | $ | 1,374.4 | 17.2 | % | $ | 1,554.9 | 19.4 | % | ||||||||
(a) | See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report. |
(b) | See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report. |
(c) | See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report. |
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Diluted EPS Excluding Certain Items Affecting Comparability and Related Constant-Currency Growth Rate
This measure is used in reporting to our executive management and as a component of the Board of Directors’ 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-over-year basis. The adjustments are either items resulting from infrequently occurring events or items that, in management’s judgment, significantly affect the year-over-year assessment of operating results.
The reconciliation of our GAAP measure, diluted EPS, to diluted EPS excluding certain items affecting comparability and the related constant-currency growth rate follows:
Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||
Per Share Data | Feb. 26, 2017 | Feb. 28, 2016 | Change | Feb. 26, 2017 | Feb. 28, 2016 | Change | ||||||||||||||||||
Diluted earnings per share, as reported | $ | 0.61 | $ | 0.59 | 3 | % | $ | 2.08 | $ | 2.15 | (3 | )% | ||||||||||||
Mark-to-market effects (a) | (0.01 | ) | — | (0.02 | ) | (0.01 | ) | |||||||||||||||||
Divestitures loss (gain) (b) | — | — | 0.01 | (0.14 | ) | |||||||||||||||||||
Restructuring costs (c) | 0.11 | 0.05 | 0.24 | 0.22 | ||||||||||||||||||||
Project-related costs (c) | 0.01 | 0.01 | 0.04 | 0.04 | ||||||||||||||||||||
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Diluted earnings per share, excluding certain items affecting comparability | $ | 0.72 | $ | 0.65 | 11 | % | $ | 2.35 | $ | 2.26 | 4 | % | ||||||||||||
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Foreign currency exchange impact | 3 | % | Flat | |||||||||||||||||||||
| ||||||||||||||||||||||||
Diluted earnings per share growth, excluding certain items affecting comparability, on a constant-currency basis | 8 | % | 4 | % | ||||||||||||||||||||
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Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||
Per Share Data | Nov. 26, 2017 | Nov. 27, 2016 | Change | Nov. 26, 2017 | Nov. 27, 2016 | Change | ||||||||||||||||||
Diluted earnings per share, as reported | $ | 0.74 | $ | 0.80 | (8 | )% | $ | 1.43 | $ | 1.47 | (3 | )% | ||||||||||||
Tax adjustment (a) | 0.07 | — | 0.07 | — | ||||||||||||||||||||
Mark-to-market effects (b) | — | (0.03 | ) | — | (0.01 | ) | ||||||||||||||||||
Divestiture loss (c) | — | 0.01 | — | 0.01 | ||||||||||||||||||||
Restructuring costs (d) | — | 0.05 | 0.02 | 0.13 | ||||||||||||||||||||
Project-related costs (d) | 0.01 | 0.02 | 0.01 | 0.03 | ||||||||||||||||||||
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| ||||||||||||||||||||||
Diluted earnings per share, excluding certain items affecting comparability | $ | 0.82 | $ | 0.85 | (4 | )% | $ | 1.53 | $ | 1.63 | (6 | )% | ||||||||||||
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| ||||||||||||||||||||||
Foreign currency exchange impact | 1 | pt | 1 | pt | ||||||||||||||||||||
Diluted earnings per share growth, excluding certain items affecting comparability, on a constant-currency basis | (5 | )% | (7 | )% | ||||||||||||||||||||
(a) | See Note 1 to the Consolidated Financial Statements in Part I, Item 1 of this report. |
(b) | See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report. |
See Note 2 to the Consolidated Financial Statements in Part I, |
See Note 3 to the Consolidated Financial Statements in Part I, |
See our reconciliation below of the effective income tax rate as reported to the effective income tax rate excluding certain items affecting comparability for the tax impact of each item affecting comparability.
Constant-CurrencyAfter-tax Earnings from Joint Ventures Growth Rates
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 rate on a constant-currency basis is calculated as follows:
Percentage Change in After- tax Earnings from Joint as Reported | Impact of Foreign Currency Exchange | Percentage Change in After- tax Earnings from Joint | ||||||||||
Quarter Ended Feb. 26, 2017 | (32 | )% | 3 pts | (35 | )% | |||||||
Nine-Month Period Ended Feb. 26, 2017 | Flat | 3 pts | (3 | )% | ||||||||
Percentage Change in After- tax Earnings from Joint as Reported | Impact of Foreign Currency Exchange | Percentage Change in After-tax Earnings from Joint Ventures on Constant-Currency Basis | ||||||||||
Quarter Ended Nov. 26, 2017 | (20 | )% | (1 | )pt | (19 | )% | ||||||
Six-Month Period Ended Nov. 26, 2017 | (12 | )% | (1 | )pt | (11 | )% | ||||||
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Net Sales Growth Rates for Our Canada Operating Unit on Constant-Currency Basis
We believe that 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:
Percentage Change in Net Sales as Reported | Impact of Foreign Currency Exchange | Percentage Change in Net Sales on Constant- Currency Basis | ||||||||||
Quarter Ended Feb. 26, 2017 | 4 | % | 5 pts | (1 | )% | |||||||
Nine-Month Period Ended Feb. 26, 2017 | (3 | )% | 1 pt | (4 | )% | |||||||
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| |||||||||||
Percentage Change in as Reported | Impact of Foreign Currency Exchange | Percentage Change in Currency Basis | ||||||||||
Quarter Ended Nov. 26, 2017 | 7 | % | 6 | pts | 1 | % | ||||||
Six-Month Period Ended Nov. 26, 2017 | 3 | % | 4 | pts | (1 | )% | ||||||
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:
Quarter Ended Feb. 26, 2017 | Quarter Ended Nov. 26, 2017 | |||||||||||||||||||||||||
Percentage Change in as Reported | Impact of Foreign Currency Exchange | Percentage Change in Operating Profit on Constant- Currency Basis | Percentage Change in as Reported | Impact of Foreign Currency Exchange | Percentage Change in Operating Profit on Constant-Currency Basis | |||||||||||||||||||||
North America Retail | (7 | )% | Flat | (7 | )% | (4 | )% | 1 | pt | (5 | )% | |||||||||||||||
Europe & Australia | 25 | (14 | ) pts | 39 | (35 | )% | 5 | pts | (40 | )% | ||||||||||||||||
Asia & Latin America | 302 | % | (14 | ) pts | 316 | % | (42 | )% | 4 | pts | (46 | )% | ||||||||||||||
Nine-Month Period Ended Feb. 26, 2017 | Six-Month Period Ended Nov. 26, 2017 | |||||||||||||||||||||||||
Percentage Change in as Reported | Impact of Foreign Currency Exchange | Percentage Change in Operating Profit on Constant- Currency Basis | Percentage Change in as Reported | Impact of Foreign Exchange | Percentage Change in Operating Profit on Constant-Currency Basis | |||||||||||||||||||||
North America Retail | (5 | )% | Flat | (5 | )% | (10 | )% | Flat | (10 | )% | ||||||||||||||||
Europe & Australia | (12 | ) | (9 | ) pts | (3 | ) | (32 | )% | 3 | pts | (35 | )% | ||||||||||||||
Asia & Latin America | 45 | % | (3 | ) pts | 48 | % | (37 | )% | 3 | pts | (40 | )% | ||||||||||||||
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Effective Income Tax Rate Excluding Certain Items Affecting Comparability
We believe this measure provides useful information to investors because it is important for assessing the effective tax rate excluding certain items affecting comparability and presents the income tax effects of certain items affecting comparability.
Effective income tax rates excluding certain items affecting comparability are calculated as follows:
Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||
Feb. 26, 2017 | Feb. 28, 2016 | Feb. 26, 2017 | Feb. 28, 2016 | |||||||||||||||||||||||||||||
In Millions (Except Per Share Data) | Pretax Earnings (a) | Income Taxes | Pretax Earnings (a) | Income Taxes | Pretax Earnings (a) | Income Taxes | Pretax Earnings (a) | Income Taxes | ||||||||||||||||||||||||
As reported | $ | 466.1 | $ | 107.0 | $ | 509.1 | $ | 157.6 | $ | 1,731.4 | $ | 511.0 | $ | 1,949.0 | $ | 667.7 | ||||||||||||||||
Mark-to-market effects (b) | (8.2 | ) | (3.1 | ) | 7.3 | 2.7 | (20.7 | ) | (7.7 | ) | (3.1 | ) | (1.1 | ) | ||||||||||||||||||
Restructuring charges (c) | 94.0 | 31.0 | 34.2 | 8.0 | 208.3 | 66.7 | 199.2 | 62.0 | ||||||||||||||||||||||||
Project-related costs (c) | 11.5 | 4.1 | 10.1 | 3.8 | 36.4 | 13.1 | 39.4 | 14.6 | ||||||||||||||||||||||||
Divestitures loss (gain) (d) | — | — | (1.5 | ) | — | 13.5 | 4.3 | (200.6 | ) | (111.0 | ) | |||||||||||||||||||||
As adjusted | $ | 563.4 | $ | 139.0 | $ | 559.2 | $ | 172.1 | $ | 1,968.9 | $ | 587.4 | $ | 1,983.9 | $ | 632.2 | ||||||||||||||||
Effective tax rate: | ||||||||||||||||||||||||||||||||
As reported | 23.0 | % | 31.0 | % | 29.5 | % | 34.3 | % | ||||||||||||||||||||||||
As adjusted | 24.7 | % | 30.8 | % | 29.8 | % | 31.9 | % | ||||||||||||||||||||||||
Sum of adjustment to income taxes | $ | 32.0 | $ | 14.5 | $ | 76.4 | $ | (35.5 | ) | |||||||||||||||||||||||
Average number of common shares - diluted EPS | 591.4 | 608.5 | 601.1 | 612.2 | ||||||||||||||||||||||||||||
Impact of income tax adjustments on diluted EPS excluding certain items affecting comparability | $ | 0.05 | $ | 0.02 | $ | 0.13 | $ | (0.06 | ) | |||||||||||||||||||||||
Quarter Ended | Six-Month Period Ended | |||||||||||||||||||||||||||||||
Nov. 26, 2017 | Nov. 27, 2016 | Nov. 26, 2017 | Nov. 27, 2016 | |||||||||||||||||||||||||||||
In Millions (Except Per Share Data) | Pretax Earnings (a) | Income Taxes | Pretax Earnings (a) | Income Taxes | Pretax (a) | Income Taxes | Pretax Earnings (a) | Income Taxes | ||||||||||||||||||||||||
As reported | $ | 654.9 | $ | 234.9 | $ | 693.4 | $ | 227.4 | $ | 1,208.3 | $ | 403.4 | $ | 1,265.3 | $ | 404.0 | ||||||||||||||||
Mark-to-market effects (b) | (4.5 | ) | (1.6 | ) | (29.1 | ) | (10.7 | ) | (6.3 | ) | (2.3 | ) | (12.5 | ) | (4.6 | ) | ||||||||||||||||
Restructuring charges (c) | 2.2 | — | 41.8 | 11.5 | 19.7 | 5.9 | 114.3 | 35.7 | ||||||||||||||||||||||||
Project-related costs (c) | 4.2 | 1.5 | 11.1 | 4.0 | 5.4 | 1.8 | 24.9 | 9.0 | ||||||||||||||||||||||||
Divestiture loss (d) | — | — | 13.5 | 4.3 | — | — | 13.5 | 4.3 | ||||||||||||||||||||||||
Tax adjustment (e) | — | (42.2 | ) | — | — | — | (42.2 | ) | — | — | ||||||||||||||||||||||
As adjusted | $ | 656.8 | $ | 192.6 | $ | 730.7 | $ | 236.5 | $ | 1,227.1 | $ | 366.6 | $ | 1,405.5 | $ | 448.4 | ||||||||||||||||
Effective tax rate: | ||||||||||||||||||||||||||||||||
As reported | 35.9 | % | 32.8 | % | 33.4 | % | 31.9 | % | ||||||||||||||||||||||||
As adjusted | 29.3 | % | 32.4 | % | 29.9 | % | 31.9 | % | ||||||||||||||||||||||||
Sum of adjustment to income taxes | $ | (42.3 | ) | $ | 9.1 | $ | (36.8 | ) | $ | 44.4 | ||||||||||||||||||||||
Average number of common shares - diluted EPS | 580.3 | 599.7 | 583.6 | 606.0 | ||||||||||||||||||||||||||||
Impact of income tax adjustments on diluted EPS excluding certain items affecting comparability | $ | (0.07 | ) | $ | 0.02 | $ | (0.06 | ) | $ | 0.07 | ||||||||||||||||||||||
(a) | Earnings before income taxes andafter-tax earnings from joint ventures. |
(b) | See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report. |
(c) | See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report. |
(d) | See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report. |
(e) | See Note 1 to the Consolidated Financial Statements in Part I, Item 1 of this report. |
GLOSSARY
Accelerateddepreciationassociatedwithrestructuredassets.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.
Adjustedoperatingprofitmargin.Operating profit adjusted for certain items affecting year-over-year comparability, divided by net sales.
AOCI. Accumulated other comprehensive income (loss).
Constantcurrency. Financial results translated to U.S. dollars using constant foreign currency exchange rates based on the rates in effect for the comparable prior-year 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. 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.
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 stock prices.
Euribor. Euro Interbank Offered Rate.
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Fairvaluehierarchy.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. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:
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. |
Fixedchargecoverageratio. The sum of earnings before income taxes and fixed charges (before tax), divided by the sum of the fixed charges (before tax) and interest.
Focus6platforms. The Focus 6 platforms for the Convenience Stores & Foodservice segment consist of cereal, yogurt, snacks, frozen meals, biscuits, and baking mixes.
Foundationbusinesses. Foundation businesses consist primarily of refrigerated dough, desserts, and soup in our North America Retail segment and bakery flour and frozen dough products in our Convenience Stores & Foodservice segment, as well as other product lines not included in Growth businesses.
GenerallyAcceptedAccountingPrinciples(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 noncontrolling and redeemable interests and the related fair values of net assets acquired.
Growthbusinesses. Growth businesses include cereal, snack bars, the natural and organic portfolio, hot snacks, Mexican products, and yogurt in our North America Retail segment; our Europe & Australia segment; our Asia & Latin America segment; and our Focus 6 platforms in our Convenience Stores & Foodservice segment.
Hedgeaccounting.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. 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.
Interestbearinginstruments.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.
Netmark-to-marketvaluationofcertaincommoditypositions.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.
Netpricerealization.The impact of list and promoted price changes, net of trade and other price promotion costs.
Noncontrollinginterests.Interests of subsidiaries held by third parties.
Notionalprincipalamount.The principal amount on which fixed-rate or floating-rate interest payments are calculated.
OCI.Other Comprehensive Income.
Organicnetsalesgrowth. Net sales growth adjusted for foreign currency translation, as well as acquisitions, divestitures, and a 53rd week impact, when applicable.
Project-relatedcosts.Costs incurred related to our restructuring initiatives not included in restructuring charges.
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Redeemableinterest.Interest of 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.
Totaldebt.Notes payable and long-term debt, including current portion.
Translationadjustments.The impact of the conversion of our foreign affiliates’ financial statements to U.S. dollars for the purpose of consolidating our financial statements.
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 Securities and Exchange Commission and in our reports to stockholders.
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; changes in capital structure; changes in the legal and regulatory environment, including tax reform 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 Part I of our Annual Report on Form10-K for the fiscal year ended May 29, 2016,28, 2017, 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 3. | Quantitative and Qualitative Disclosures About Market Risk. |
The estimated maximum potentialvalue-at-risk arising from aone-day loss in fair value for our interest rate, foreign exchange, commodity, and equity market-risk-sensitive instruments outstanding as of FebruaryNovember 26, 2017 was $27 million, $21 million, $2$25 million, $1 million, and $1 million, respectively. During the nine-monthsix-month period ended FebruaryNovember 26, 2017, the interest rate foreign exchange, and commodityvalue-at-risk decreased by $7 million, $6$4 million and $1$2 million, respectively, while the foreign exchangevalue-at-risk increased by $1 million, and the equityvalue-at-risk was flat compared to this measure as of May 29, 2016.28, 2017. Thevalue-at-risk for interest rate and foreign exchange decreased due to lower volatility, whilevalue-at-risk for commodity positions decreased due to lower market volatility and smaller portfolios. Thevalue-at-risk for foreign exchange instruments increased due to the higher translated value of Euro-denominated debt, partially offset by lower notional amount of outstanding derivative positions.observed foreign exchange and interest rate market volatility. For additional information, see Item 7A of Part II of our Annual Report on Form10-K for the fiscal year ended May 29, 2016.28, 2017.
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Item 4. | 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 RuleRule 13a-15(e) under the Securities Exchange Act of 1934). Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of FebruaryNovember 26, 2017, 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 Securities Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission 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 Securities Exchange Act of 1934) during the quarter ended FebruaryNovember 26, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
The following table sets forth information with respect to shares of our common stock that we purchased during the quarter ended FebruaryNovember 26, 2017:
Period | Total Number of Shares | Average Price Paid Per Share | Total Number of Shares Purchased as | Maximum Number of Shares that may yet be Purchased Under the Program (b) | ||||||||||||
November 28, 2016- | ||||||||||||||||
January 1, 2017 | 253,143 | $ | 60.49 | 253,143 | 55,050,226 | |||||||||||
January 2, 2017- | ||||||||||||||||
January 29, 2017 | 4,618,004 | 61.80 | 4,618,004 | 50,432,222 | ||||||||||||
January 30, 2017- | ||||||||||||||||
February 26, 2017 | 4,731 | 61.37 | 4,731 | 50,427,491 | ||||||||||||
Total | 4,875,878 | $ | 61.73 | 4,875,878 | 50,427,491 | |||||||||||
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 Purchased Under the Program (b) | ||||||||||||
August 28, 2017-October 1, 2017 | 306 | $ | 53.72 | 306 | 39,539,317 | |||||||||||
October 2, 2017-October 29, 2017 | 2,468 | 51.76 | 2,468 | 39,536,849 | ||||||||||||
October 30, 2017-November 26, 2017 | — | — | — | 39,536,849 | ||||||||||||
Total | 2,774 | $ | 51.98 | 2,774 | 39,536,849 | |||||||||||
(a) | The total number of shares purchased includes: (i) shares purchased on the open market; and (ii) shares 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, Rule10b5-1 trading plans, and accelerated repurchase programs. The Board did not specify an expiration date for the authorization. |
Item 6. | Exhibits. |
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Pursuant to the requirements 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. | ||||||
(Registrant) | ||||||
Date | /s/ | |||||
Kofi A. | ||||||
Vice President, Controller | ||||||
(Principal Accounting Officer and Duly Authorized Officer) |
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Exhibit Index
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