Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
INTRODUCTION
This Managements
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 Form
10-K
for the fiscal year ended
May 29, 2016 for important background regarding, among other things, our key business drivers. Significant trademarks and service marks used in our business are set forth in
italics
herein. Certain terms used throughout this report are
defined in the Glossary section below.
CONSOLIDATED RESULTS OF OPERATIONS
Third Quarter Results
In the third
quarter of fiscal 2017, operating results reflected challenging net sales performance. However, we continued progress against our cost savings and margin expansion initiatives. The net sales decline of 5 percent was driven by declining
contributions from volume in the North America Retail segment which were partially offset by positive net price realization and mix. Operating profit margin of 14.3 percent was down 30 basis points from
year-ago
levels primarily driven by an increase in restructuring expenses. Adjusted operating profit margin increased 100 basis points to 16.9 percent, driven by the impact of cost savings and
spending optimization initiatives. Diluted earnings per share of $0.61 increased 3 percent compared to the third quarter of fiscal 2016 and adjusted diluted earnings per share, which excludes certain items affecting comparability, on a
constant-currency basis increased 8 percent compared to the third 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 third quarter of fiscal 2017 follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended Feb. 26, 2017
|
|
In millions, except
per share
|
|
|
Quarter Ended
Feb. 26, 2017 vs.
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)
|
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|
662.3
|
|
|
|
(2
|
)%
|
|
|
|
|
|
|
(2
|
)%
|
Adjusted operating profit margin (a)
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|
|
|
|
|
|
|
|
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|
16.9
|
%
|
|
|
|
|
Diluted earnings per share,
excluding certain items affecting comparability (a)
|
|
$
|
0.72
|
|
|
|
11
|
%
|
|
|
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
(a)
|
See the
Non-GAAP
Measures section below for our use of measures not defined by GAAP.
|
Consolidated
net sales
were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
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|
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|
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|
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|
|
|
|
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(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 5 percent decline in net sales primarily reflected lower organic net sales.
24
Organic net sales declined 5 percent driven by 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 53
rd
week of results, when applicable.
Components of organic net sales growth are shown in the
following table:
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|
|
|
|
Quarter Ended Feb. 26, 2017 vs.
Quarter Ended Feb. 28, 2016
|
|
|
|
Contributions from organic volume growth (a)
|
|
|
(7) pts
|
|
Organic net price realization and mix
|
|
|
2 pts
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
(5) pts
|
|
Foreign currency exchange
|
|
|
Flat
|
|
Acquisitions and divestitures
|
|
|
Flat
|
|
|
|
|
|
|
Net sales growth
|
|
|
(5) pts
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Cost of sales
decreased $159 million from the third quarter of fiscal 2016 to $2,486 million. The decrease included a $152 million decrease attributable to lower volume and a
$7 million increase attributable to product rate and mix. We recorded an $8 million net decrease in cost of sales related to the
mark-to-market
valuation of
certain commodity positions and grain inventories in the third quarter of fiscal 2017 compared to a net increase of $7 million in the third quarter of fiscal 2016. We recorded $16 million of restructuring charges in cost of sales in the
third quarter of fiscal 2017 compared to $17 million in the same period last year. We also recorded $12 million of restructuring initiative project-related costs in the third quarter of fiscal 2017 compared to $10 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, and
administrative (SG&A) expenses
decreased $68 million to $688 million in the third quarter of fiscal 2017 compared to the same period in fiscal 2016. The decrease in SG&A expenses primarily reflects savings from cost management
initiatives and an 8 percentage point decrease in media and advertising expense. SG&A expenses as a percent of net sales in the third quarter of fiscal 2017 decreased 76 basis points compared with the third quarter of fiscal 2016.
Restructuring, impairment, and other exit costs
totaled $78 million in the third quarter of fiscal 2017 compared to $17 million in the
same period last year.
Total charges associated with our current restructuring initiatives were as follows:
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|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes $16.4 million of restructuring charges recorded in cost of sales in fiscal 2017 and $17.3 million in fiscal 2016.
|
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, net
for the third quarter of fiscal 2017
totaled $76 million, down $1 million from fiscal 2016.
25
The
effective tax rate
for the third quarter of fiscal 2017 was 23.0 percent compared to
31.0 percent for the third quarter of fiscal 2016. The 8.0 percentage point decrease was primarily due to favorable impacts of French tax legislation and other favorable discrete tax items that occurred during the third quarter of fiscal 2017.
Our effective tax rate excluding certain items affecting comparability was 24.7 percent in the third quarter of fiscal 2017 compared to 30.8 percent in the third quarter of fiscal 2016 (see the
Non-GAAP
Measures section below for a description of our use of measures not defined by GAAP).
After-tax
earnings from joint ventures
for the third quarter of fiscal 2017 decreased to $11 million compared to $16 million in the same quarter
last fiscal year, primarily driven by an asset
write-off
for Cereal Partners Worldwide (CPW) and lower volume growth for
Häagen-Dazs
Japan, Inc. (HDJ). On a
constant-currency basis,
after-tax
earnings from joint ventures decreased 35 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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|
|
|
|
|
|
|
|
Quarter Ended Feb. 26, 2017 vs.
Quarter Ended Feb. 28, 2016
|
|
CPW
|
|
|
HDJ
|
|
Contributions from volume growth (a)
|
|
|
3 pts
|
|
|
|
(6) pts
|
|
Net price realization and mix
|
|
|
1 pt
|
|
|
|
1 pt
|
|
Foreign currency exchange
|
|
|
(2) pts
|
|
|
|
3 pts
|
|
Net sales growth
|
|
|
2 pts
|
|
|
|
(2) 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
|
|
|
|
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 %
|
|
HDJ
|
|
|
(2)%
|
|
|
|
3 pts
|
|
|
|
(5)%
|
|
Joint Ventures
|
|
|
1 %
|
|
|
|
(1) pt
|
|
|
|
2 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average diluted shares outstanding
decreased by 17 million in the third quarter of fiscal 2017 from the same
period a year ago due to the impact of share repurchases, partially offset by option exercises.
Nine-Month Results
In the nine-months ended February 26, 2017, operating results reflected challenging net sales performance. However, we continued progress against
our cost savings and margin expansion initiatives. The 7 percent decline in net sales was driven by declining contributions from volume in the North America Retail and Europe & Australia segments, including the impact of the
divestiture of the North American Green Giant product lines (Green Giant). Operating profit margin of 16.6 percent was down 60 basis points from
year-ago
levels primarily driven by a gain from the
Green Giant divestiture in fiscal 2016. In the nine-month period ended February 26, 2017, we made progress toward our revised fiscal 2017 adjusted operating profit margin goal of 18 percent with an increase of 110 basis points over
the same period in the prior year to 18.6 percent, driven by the impact of cost savings and spending optimization initiatives. For the nine-month period ended February 26, 2017, diluted earnings per share of $2.08 decreased 3 percent
compared to the same period in fiscal 2016 which included the gain from the Green Giant divestiture. 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 4 percent compared to the same period of fiscal 2016 (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-month period ended February 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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See the
Non-GAAP
Measures section below for our use of measures not defined by GAAP.
|
Consolidated
net sales
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 7 percent decline in net sales primarily reflected lower organic net sales and the Green Giant divestiture in fiscal 2016.
Organic net sales declined 5 percent driven by volume declines in the North America Retail, Europe & Australia, 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:
|
|
|
|
|
Nine-Month Period Ended Feb. 26, 2017 vs.
Nine-Month Period Ended Feb. 28, 2016
|
|
|
|
Contributions from organic volume growth (a)
|
|
|
(7) pts
|
|
Organic net price realization and mix
|
|
|
2 pts
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
(5) pts
|
|
Foreign currency exchange
|
|
|
(1) pt
|
|
Acquisitions and divestitures (b)
|
|
|
(1) pt
|
|
Net sales growth
|
|
|
(7) pts
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
(b)
|
Primarily the Green Giant divestiture in fiscal 2016.
|
27
Cost of sales
decreased $613 million from the nine-month period ended February 28, 2016, to
$7,569 million. The decrease included a $639 million decrease attributable to lower volume and a $65 million 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. We recorded $43 million of restructuring charges in cost of sales in the nine-month period ended February 26, 2017, compared to $61 million in the same period last year. We also recorded
$36 million of restructuring initiative project-related costs in the nine-month period ended February 26, 2017 compared to $39 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 million net decrease in cost of sales related to the
mark-to-market
valuation of certain commodity positions and
grain inventories in the nine-month period ended February 26, 2017, compared to a net decrease of $3 million in the nine-month period ended February 28, 2016.
SG&A expenses
decreased $232 million to $2,108 million in the nine-month period ended February 26, 2017, compared to the same period in fiscal 2016. The decrease in SG&A
expenses primarily reflects a 17 percentage point decrease in media and advertising expense and savings from cost management initiatives. SG&A expenses as a percent of net sales in the nine-month period ended February 26, 2017 decreased 67
basis points compared with the same period of fiscal 2016.
Divestiture loss
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, and other exit costs
totaled $165 million in the nine-month period ended February 26, 2017 compared to
$138 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes $42.8 million of restructuring charges recorded in cost of sales during fiscal 2017 and $60.9 million in fiscal 2016.
|
(b)
|
Cumulative annual savings 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, net
for the nine-month period ended February 26, 2017, totaled $226 million, flat to the same period of
fiscal 2016.
The
effective tax rate
for the nine-month period ended February 26, 2017, was 29.5 percent compared to
34.3 percent for the nine-month period ended February 28, 2016. The 4.8 percentage point decrease was primarily due to significant
non-deductible
expenses related to the Green Giant divestiture in
the second quarter of fiscal 2016, as well as favorable impacts of French tax legislation and other favorable discrete tax items that occurred during the third quarter of fiscal 2017. Our effective tax rate excluding certain items affecting
comparability was 29.8 percent for the nine-month period ended February 26, 2017 compared to 31.9 percent in the nine-month period ended February 28, 2016 (see the
Non-GAAP
Measures section below for a description of our use of measures not defined by GAAP).
After-tax
earnings from joint ventures
for the nine-month period ended February 26, 2017, were
$65 million, flat to the same period in fiscal 2016, as favorable foreign currency exchange and lower input costs for HDJ were offset by an asset
write-off
and unfavorable foreign currency exchange for
CPW. On a constant-currency basis,
after-tax
earnings from joint ventures decreased 3
28
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:
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended Feb. 26, 2017 vs.
Nine-Month Period Ended Feb. 28, 2016
|
|
CPW
|
|
HDJ
|
|
|
|
Contributions from volume growth (a)
|
|
3 pts
|
|
3 pts
|
|
|
|
Net price realization and mix
|
|
Flat
|
|
2 pts
|
Foreign currency exchange
|
|
(4) pts
|
|
12 pts
|
Net sales growth
|
|
(1) pt
|
|
17 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
|
|
|
|
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
|
%
|
HDJ
|
|
|
17
|
%
|
|
12 pts
|
|
|
5
|
%
|
Joint Ventures
|
|
|
2
|
%
|
|
(1) pt
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average diluted shares outstanding
decreased by 11 million in the nine-month period ended February 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
(9) pts
|
|
|
|
|
|
|
|
|
|
(12) pts
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
Flat
|
|
|
|
|
|
|
|
|
|
Flat
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
2 pts
|
|
|
|
|
|
|
|
|
|
4 pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
29
The 7 percent decrease in North America Retail net sales for the quarter ended February 26, 2017
was driven by declines in the 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 the U.S. Meals & Baking, U.S. Yogurt, U.S. Cereal,
and Canada 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:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 26, 2017
|
|
|
Feb. 26, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
(10) pts
|
|
|
|
(9) pts
|
|
Organic net price realization and mix
|
|
|
2 pts
|
|
|
|
3 pts
|
|
|
|
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
(8) pts
|
|
|
|
(6) pts
|
|
Foreign currency exchange
|
|
|
Flat
|
|
|
|
Flat
|
|
Acquisitions and divestitures (b)
|
|
|
1 pt
|
|
|
|
(2) pts
|
|
Net sales growth
|
|
|
(7) pts
|
|
|
|
(8) pts
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
(b)
|
Primarily the Green Giant divestiture in fiscal 2016.
|
North America Retail organic net sales decreased 8 percentage points for the quarter ended February 26, 2017 and decreased 6 percentage points for the nine-month period ended February 26, 2017
compared to the same periods in the prior year, which reflect the impact of reduced marketing and trade support and increased competition in key categories.
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
|
)%
|
|
|
|
|
|
|
|
|
|
(a)
|
On a constant currency basis, Canada net sales decreased 1 percent for the quarter ended February 26, 2017 and decreased 4 percent for the nine-month
period ended February 26, 2017. See the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP.
|
Segment operating profit decreased 7 percent to $517 million in the third quarter of fiscal 2017 compared to $553 million in the same period of fiscal 2016, primarily driven by volume
declines, partially offset by a decline in media and advertising expense and benefits from cost savings initiatives. Segment operating profit decreased 7 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 5 percent to $1,796 million in the nine-month period ended February 26, 2017 compared to $1,886 million in the same period of fiscal 2016, primarily
driven by volume declines, currency-driven inflation on products imported into Canada, 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. Segment operating profit for the nine-month period ended February 26, 2017, decreased 5 percent on a constant-currency basis compared to the same period of fiscal 2016 (see the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP).
30
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
1 pt
|
|
|
|
|
|
|
|
|
|
Flat
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
(2) pts
|
|
|
|
|
|
|
|
|
|
(4) pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 1 percent decline in Convenience Stores & Foodservice net sales in the third quarter of fiscal 2017 was driven by a decline in
non-Focus
6
platforms, partially offset by an increase in the Focus 6 platforms.
The 4 percent decline in Convenience Stores & Foodservice
net sales in the nine-month period ended February 26, 2017 was driven primarily by market index pricing on bakery flour, partially offset by an increase in the Focus 6 platforms.
The components of Convenience Stores & Foodservice organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 26, 2017
|
|
|
Feb. 26, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
1 pt
|
|
|
|
Flat
|
|
Organic net price realization and mix
|
|
|
(2) pts
|
|
|
|
(4) pts
|
|
|
|
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
(1) pt
|
|
|
|
(4) pts
|
|
Acquisitions and divestitures
|
|
|
NM
|
|
|
|
NM
|
|
Net sales growth
|
|
|
(1) pt
|
|
|
|
(4) pts
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Segment operating profit increased 3 percent to $94 million in the third 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 lower input costs.
Segment operating profit increased by 8 percent to
$295 million for the nine-month period ended February 26, 2017 from $273 million in the same period last year. The increase was primarily driven by benefits from cost savings initiatives, lower input costs, and higher grain
merchandise earnings.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 3 percent decline in Europe & Australia net sales for the third quarter of fiscal 2017 was driven by unfavorable foreign currency exchange, partially offset by favorable net price
realization and mix and contributions from volume growth.
31
The 7 percent decline in Europe & Australia net sales for the nine-month period ended
February 26, 2017 was driven by unfavorable foreign currency exchange and contributions from volume growth, partially offset by favorable net price realization and mix.
The components of Europe & Australia organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 26, 2017
|
|
|
Feb. 26, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
1 pt
|
|
|
|
(3) pts
|
|
Organic net price realization and mix
|
|
|
1 pt
|
|
|
|
1 pt
|
|
|
|
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
2 pts
|
|
|
|
(2) pts
|
|
Foreign currency exchange
|
|
|
(5) pts
|
|
|
|
(5) pts
|
|
Net sales growth
|
|
|
(3) pts
|
|
|
|
(7) pts
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 2 percent increase in Europe & Australia organic net sales growth for the third quarter of fiscal 2017 was driven by a 1 percentage point increase from contributions from organic volume
growth and a 1 percentage point increase from organic net price realization.
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 25 percent to $42 million in the third quarter of fiscal 2017 compared to $34 million in
the same period of fiscal 2016. These results were 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 3 percent on a constant-currency basis compared to the same period of fiscal 2016 (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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
(3) pts
|
|
|
|
|
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
3 pts
|
|
|
|
|
|
|
|
|
|
|
|
(1) pt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Asia & Latin America net sales were flat in the third quarter of fiscal 2017 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 were offset by the impact of the divestitures of our Venezuela subsidiary and Argentina foodservice business in fiscal 2016.
Asia & Latin America net sales declined 1 percent in the nine-month period ended February 26, 2017, primarily driven by unfavorable foreign currency exchange.
32
The components of Asia & Latin America organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 26, 2017
|
|
|
Feb. 26, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
(3) pts
|
|
|
|
(4) pts
|
|
Organic net price realization and mix
|
|
|
1 pt
|
|
|
|
5 pts
|
|
|
|
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
(2) pts
|
|
|
|
1 pt
|
|
Foreign currency exchange
|
|
|
3 pts
|
|
|
|
(1) pt
|
|
Acquisitions and divestitures (b)
|
|
|
(1) pt
|
|
|
|
(1) pt
|
|
Net sales growth
|
|
|
Flat
|
|
|
|
(1) pt
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
(b)
|
Primarily the Venezuela subsidiary divestiture, Argentina foodservice divestiture, and Carolina acquisition in fiscal 2016.
|
The 2 percent decrease in Asia & Latin America organic net sales for the quarter ended February 26, 2017 was primarily driven by a 3
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.
The 1 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.
Segment operating profit increased to $10 million in the third quarter of fiscal
2017 compared to $2 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 foreign currency exchange, including currency-driven deflation on imported raw materials in certain markets, and the impact of the divestitures in fiscal 2016. Asia & Latin
America segment operating profit increased 316 percent on a constant-currency basis in the third quarter of fiscal 2017 compared to the third 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).
UNALLOCATED CORPORATE ITEMS
Unallocated corporate expense totaled $42 million in the third quarter of fiscal 2017 compared to $78 million in the same period in fiscal
2016. In the third quarter of fiscal 2017, we recorded $16 million of restructuring charges and $12 million of restructuring initiative project-related costs in cost of sales compared to $17 million of restructuring charges and
$10 million of restructuring initiative project-related costs in cost of sales in the same period last year. In addition, we recorded an $8 million net decrease in expense related to the
mark-to-market
valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2017 compared to a $7 million net increase 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 million in the nine-month period ended February 26, 2017, compared to $232 million in the same period last year. In the nine-month period ended February 26, 2017, we recorded $43 million of restructuring
charges and $36 million of restructuring initiative project-related costs compared to $61 million of restructuring charges and $39 million of restructuring initiative project-related costs in the same period last year. In addition, we
recorded a $21 million net decrease in expense related to the
mark-to-market
valuation of certain commodity positions and grain inventories in the nine-month period
ended February 26, 2017, compared to a $3 million net decrease in expense in the same period a year ago. We also recorded a decrease in incentive expense in the nine-month period ended February 26, 2017, compared to the same period
last year.
LIQUIDITY
During the nine-month period ended February 26, 2017, cash provided by operations was $1,559 million compared to $1,862 million in the
same period last year. The $303 million decrease is primarily driven by a $610 million change in current assets and liabilities. The $610 million change in current assets and liabilities is primarily due to changes in other current
liabilities 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.
33
Cash used by investing activities during the nine-month period ended February 26, 2017, was
$424 million, compared to cash provided by investing activities of $335 million in the same period in fiscal 2016. Investments of $475 million in land, buildings and equipment in the nine-month period ended February 26, 2017
decreased $3 million compared to the same period a year ago. Additionally, we recorded proceeds of $823 million related to the sale of our Green Giant product lines during the nine-month period ended 2016.
Cash used by financing activities during the nine-month period ended February 26, 2017, was $983 million compared to $1,720 million in the
same period last year. We had $1,428 million of net debt issuances in the first nine months of fiscal 2017 compared to $403 million of net debt payments in the same period a year ago. We paid $1,651 million in cash to repurchase
common stock and paid $856 million of dividends in the first nine months of fiscal 2017 compared to $602 million and $795 million, respectively, in the same period last year.
As of February 26, 2017, we had $862 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 a
tax-neutral
manner.
CAPITAL RESOURCES
Our capital structure was as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Feb. 26,
2017
|
|
|
May 29,
2016
|
|
Notes payable
|
|
$
|
1,942.0
|
|
|
$
|
269.8
|
|
Current portion of long-term debt
|
|
|
604.7
|
|
|
|
1,103.4
|
|
Long-term debt
|
|
|
7,176.4
|
|
|
|
7,057.7
|
|
Total debt
|
|
|
9,723.1
|
|
|
|
8,430.9
|
|
Redeemable interest
|
|
|
869.2
|
|
|
|
845.6
|
|
Noncontrolling interests
|
|
|
340.1
|
|
|
|
376.9
|
|
Stockholders equity
|
|
|
4,063.4
|
|
|
|
4,930.2
|
|
Total capital
|
|
$
|
14,995.8
|
|
|
$
|
14,583.6
|
|
|
|
|
|
|
|
|
|
|
To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding notes payable.
Commercial paper is a continuing source of short-term financing. 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 the
fee-paid
committed and uncommitted credit lines we had
available as of February 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
|
|
|
|
|
|
|
|
|
|
|
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 holders capital account balance established in the most recent
mark-to-market
valuation (currently $252 million). On June 1, 2015, the floating preferred return rate on GMCs 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 holders capital
34
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 February 26, 2017, we recorded Sodiaals
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 February 26, 2017, the redemption value of the redeemable interest was $869 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 February 26, 2017, we were in compliance with all of these
covenants.
We have $605 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. 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 or
off-balance
sheet arrangements during the third quarter of fiscal 2017.
SIGNIFICANT ACCOUNTING ESTIMATES
Our significant accounting policies are described in
Note 2 to the Consolidated Financial Statements included in our Annual Report on Form
10-K
for the fiscal year ended May 29, 2016. The accounting policies used in preparing our interim fiscal 2017
Consolidated Financial Statements are the same as those described in our Form
10-K.
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
February 26, 2017, are the same as those described in our Annual Report on Form
10-K
for the fiscal year ended May 29, 2016, except as described in Note 14 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 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.
Our annual goodwill intangible asset test was performed on the first day of the second quarter of fiscal 2017 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 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.
35
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 the
Immaculate Baking
brand intangible
asset.
The excess fair value above the carrying value of the Latin America reporting unit and the
Immaculate Baking
brand intangible
asset is as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Carrying
Value
|
|
|
Excess Fair Value
Above Carrying
Value
|
|
Latin America
|
|
$
|
523.0
|
|
|
|
15
|
%
|
Immaculate Baking
|
|
$
|
12.0
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
In addition, while having significant coverage as of our fiscal 2017 assessment date, the
Progresso
,
Green
Giant
and
Food Should Taste Good
brand intangible assets had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2017, the Financial Accounting
Standards Board (FASB) issued new accounting requirements related to goodwill impairment testing. The new standard eliminates the requirement to measure a goodwill impairment loss by determining the implied fair value of goodwill. Instead, goodwill
impairment losses will be measured by the amount by which a reporting units carrying value exceeds the reporting units fair value, limited to the amount of goodwill allocated to the reporting unit. The requirements of the new standard
are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, which for us is fiscal 2021. Early adoption is permitted. We intend to adopt this standard in fiscal 2018 and do not expect
this guidance to have a material impact on our results of operations or financial position.
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 the impact on our results of operations and 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 additional
paid-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 evaluating lease accounting software as well as analyzing the impact 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.
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 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.
36
NON-GAAP
MEASURES
We have included in this report measures of financial performance that are not defined by GAAP. We believe that these measures provide useful information
to investors and include these measures in other communications to investors.
For each of these
non-GAAP
financial measures, we are providing below a reconciliation of the differences between the
non-GAAP
measure and the most directly comparable GAAP measure, an
explanation of why we believe the
non-GAAP
measure provides useful information to investors, and any additional purposes for which we use the
non-GAAP
measure. These
non-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 a
non-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-looking
non-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
53
rd
week, when applicable, have on
year-to-year
comparability. A reconciliation of these measures to reported net sales growth rates, the relevant GAAP measures, are included in our Consolidated Results of
Operations and 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
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
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 managements 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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
38
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 managements 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share, excluding certain items affecting comparability
|
|
$
|
0.72
|
|
|
$
|
0.65
|
|
|
|
11
|
%
|
|
$
|
2.35
|
|
|
$
|
2.26
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange impact
|
|
|
|
|
|
|
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
Flat
|
|
|
|
Diluted earnings per share growth, excluding certain items affecting comparability, on a constant-currency
basis
|
|
|
|
|
|
|
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
4
|
%
|
|
|
(a)
|
See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(b)
|
See Note 2 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.
|
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-Currency
After-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 on
year-to-year
comparability given volatility in foreign currency
exchange markets.
After-tax
earnings from joint ventures growth rate on a constant-currency basis is
calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change in After-
tax Earnings from Joint
Ventures
as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in After-
tax Earnings from Joint
Ventures on Constant-
Currency Basis
|
|
Quarter Ended Feb. 26, 2017
|
|
|
(32
|
)%
|
|
|
3 pts
|
|
|
|
(35
|
)%
|
Nine-Month Period Ended Feb. 26, 2017
|
|
|
Flat
|
|
|
|
3 pts
|
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
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 on
year-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
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant-Currency Segment Operating Profit Growth Rates
We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our segments by
excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year
comparability given volatility in foreign currency exchange markets.
Our segments operating profit growth rates on a constant-currency basis are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended Feb. 26, 2017
|
|
|
|
Percentage Change in
Operating
Profit
as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in
Operating Profit on Constant-
Currency
Basis
|
|
North America Retail
|
|
|
(7
|
)%
|
|
|
Flat
|
|
|
|
(7
|
)%
|
Europe & Australia
|
|
|
25
|
|
|
|
(14
|
) pts
|
|
|
39
|
|
Asia & Latin America
|
|
|
302
|
%
|
|
|
(14
|
) pts
|
|
|
316
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended Feb. 26, 2017
|
|
|
|
Percentage Change in
Operating
Profit
as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in
Operating Profit on Constant-
Currency Basis
|
|
North America Retail
|
|
|
(5
|
)%
|
|
|
Flat
|
|
|
|
(5
|
)%
|
Europe & Australia
|
|
|
(12
|
)
|
|
|
(9
|
) pts
|
|
|
(3
|
)
|
Asia & Latin America
|
|
|
45
|
%
|
|
|
(3
|
) pts
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Earnings before income taxes and
after-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.
|
GLOSSARY
Accelerated depreciation associated with restructured assets.
The
increase in depreciation expense caused by updating the salvage value and shortening the useful life of depreciable fixed assets to coincide with the end of production under an approved restructuring plan, but only if impairment is not present.
Adjusted operating profit margin.
Operating profit adjusted for certain items affecting year-over-year comparability, divided by net
sales.
AOCI
. Accumulated other comprehensive income (loss).
Constant currency.
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.
41
Fair value hierarchy.
For purposes of fair value measurement, we categorize assets and liabilities
into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. 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 managements assumptions about the inputs used in pricing the asset or liability.
|
Fixed charge coverage ratio.
The sum of earnings before income taxes and fixed charges (before tax),
divided by the sum of the fixed charges (before tax) and interest.
Focus 6 platforms.
The Focus 6 platforms for the Convenience
Stores & Foodservice segment consist of cereal, yogurt, snacks, frozen meals, biscuits, and baking mixes.
Foundation
businesses.
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.
Generally Accepted Accounting Principles (GAAP).
Guidelines, procedures, and
practices that we are required to use in recording and reporting accounting information in our financial statements.
Goodwill.
The
difference between the purchase price of acquired companies plus the fair value of any noncontrolling and redeemable interests and the related fair values of net assets acquired.
Growth businesses.
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.
Hedge accounting.
Accounting for qualifying hedges that allows changes in a hedging instruments 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.
Interest bearing instruments.
Notes payable, long-term debt, including current portion, cash and cash equivalents, and certain interest bearing
investments classified within prepaid expenses and other current assets and other assets.
LIBOR.
London Interbank Offered Rate.
Mark-to-market.
The act of determining a value for
financial instruments, commodity contracts, and related assets or liabilities based on the current market price for that item.
Net
mark-to-market
valuation of certain commodity positions.
Realized and unrealized gains and losses on derivative contracts that will be allocated to segment operating
profit when the exposure we are hedging affects earnings.
Net price realization.
The impact of list and promoted price changes, net of
trade and other price promotion costs.
Noncontrolling interests.
Interests of subsidiaries held by third parties.
Notional principal amount.
The principal amount on which fixed-rate or floating-rate interest payments are calculated.
OCI.
Other Comprehensive Income.
Organic net sales growth
. Net sales growth adjusted for foreign currency translation, as well as acquisitions, divestitures, and a 53
rd
week impact, when applicable.
Project-related costs.
Costs incurred related to our restructuring initiatives not included in restructuring charges.
42
Redeemable interest.
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.
Total debt.
Notes payable and long-term debt,
including current portion.
Translation adjustments.
The impact of the conversion of our foreign affiliates financial statements
to 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 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 Form
10-K
for the fiscal year ended May 29, 2016, 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.