GENERAL MILLS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
GENERAL MILLS, INC. AND SUBSIDIARIES
NOTE 1.
BASIS OF PRESENTATION AND RECLASSIFICATIONS
Basis of Presentation
Our Consolidated Financial Statements include the accounts of General Mills, Inc. and all subsidiaries in which we have a controlling financial interest.
Intercompany transactions and accounts, including any noncontrolling and redeemable interests share of those transactions, are eliminated in consolidation.
Our fiscal year ends on the last Sunday in May. Fiscal years 2017 and 2016 consisted of 52 weeks, while fiscal year 2015 consisted of 53 weeks.
Change in Reporting Period
As part of a long-term
plan to conform the fiscal year ends of all our operations, in fiscal 2017 we changed the reporting period of General Mills Brasil Alimentos Ltda (Yoki) within our Asia & Latin America segment from an April fiscal year-end to a May fiscal
year-end to match our fiscal calendar. Accordingly, in fiscal 2017, our results included 13 months of results from the affected operations. The impact of these changes was not material to our consolidated results of operations. Our General Mills
India business remains on an April fiscal year end.
In fiscal 2016 we changed the reporting period of Yoplait SAS and Yoplait Marques SNC within our
Europe & Australia segment and Annies, Inc. (Annies) within our North America Retail segment from an April fiscal year-end to a May fiscal year-end to match our fiscal calendar. Accordingly, in fiscal 2016, our results included
13 months of results from the affected operations. The impact of these changes was not material to our consolidated results of operations.
Certain
reclassifications to our previously reported financial information have been made to conform to the current period presentation.
NOTE 2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
We consider all investments purchased with an original maturity of three months or less to be cash equivalents.
Inventories
All inventories in the United States
other than grain are valued at the lower of cost, using the last-in, first-out (LIFO) method, or market. Grain inventories are valued at net realizable value, and all related cash contracts and derivatives are valued at fair value, with all net
changes in value recorded in earnings currently.
Inventories outside of the United States are generally valued at the lower of cost, using the first-in,
first-out (FIFO) method, or net realizable value.
Shipping costs associated with the distribution of finished product to our customers are recorded as
cost of sales, and are recognized when the related finished product is shipped to and accepted by the customer.
Land, Buildings, Equipment, and
Depreciation
Land is recorded at historical cost. Buildings and equipment, including capitalized interest and internal engineering costs, are
recorded at cost and depreciated over estimated useful lives, primarily using the straight-line method. Ordinary maintenance and repairs are charged to cost of sales. Buildings are usually depreciated over 40 years, and equipment, furniture, and
software are usually depreciated over 3 to 10 years. Fully depreciated assets are retained in buildings and equipment until disposal. When an item is sold or retired, the accounts are relieved of its cost and related accumulated depreciation and the
resulting gains and losses, if any, are recognized in earnings. As of May 28, 2017, assets held for sale were insignificant.
Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from the
operation and disposition of the asset group are less than the carrying amount of the asset group. Asset groups have identifiable cash flows and are largely independent of other asset groups. Measurement of an impairment loss would be based on the
excess of the carrying amount of the asset group over its fair value. Fair value is measured using a discounted cash flow model or independent appraisals, as appropriate.
55
Goodwill and Other Intangible Assets
Goodwill is not subject to amortization and is tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have
occurred. In fiscal 2016, we changed the date of our annual goodwill and indefinite-lived intangible asset impairment assessment from the first day of the third quarter to the first day of the second quarter to more closely align with the timing of
our annual long-range planning process. Impairment testing is performed for each of our reporting units. We compare the carrying value of a reporting unit, including goodwill, to the fair value of the unit. Carrying value is based on the assets and
liabilities associated with the operations of that reporting unit, which often requires allocation of shared or corporate items among reporting units. If the carrying amount of a reporting unit exceeds its fair value, we revalue all assets and
liabilities of the reporting unit, excluding goodwill, to determine if the fair value of the net assets is greater than the net assets including goodwill. If the fair value of the net assets is less than the carrying amount of net assets including
goodwill, impairment has occurred. Our estimates of fair value are determined based on a discounted cash flow model. Growth rates for sales and profits are determined using inputs from our long-range planning process. We also make estimates of
discount rates, perpetuity growth assumptions, market comparables, and other factors.
We evaluate the useful lives of our other intangible assets, mainly
brands, to determine if they are finite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as
the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the
expected lives of other related groups of assets. Intangible assets that are deemed to have definite lives are amortized on a straight-line basis, over their useful lives, generally ranging from 4 to 30 years.
Our indefinite-lived intangible assets, mainly intangible assets primarily associated with the
Pillsbury
,
Totinos
,
Progresso
,
Yoplait
,
Old El Paso
,
Yoki
,
Häagen-Dazs
, and
Annies
brands, are also tested for impairment annually and whenever events or changes in circumstances indicate that their carrying value may not be
recoverable. Our estimate of the fair value of the brands is based on a discounted cash flow model using inputs which included projected revenues from our long-range plan, assumed royalty rates that could be payable if we did not own the brands, and
a discount rate.
Our finite-lived intangible assets, primarily acquired franchise agreements and customer relationships, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from the operation and disposition of the asset
are less than the carrying amount of the asset. Assets generally have identifiable cash flows and are largely independent of other assets. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset over its
fair value. Fair value is measured using a discounted cash flow model or other similar valuation model, as appropriate.
Investments in
Unconsolidated Joint Ventures
Our investments in companies over which we have the ability to exercise significant influence are stated at cost
plus our share of undistributed earnings or losses. We receive royalty income from certain joint ventures, incur various expenses (primarily research and development), and record the tax impact of certain joint venture operations that are structured
as partnerships. In addition, we make advances to our joint ventures in the form of loans or capital investments. We also sell certain raw materials, semi-finished goods, and finished goods to the joint ventures, generally at market prices.
In addition, we assess our investments in our joint ventures if we have reason to believe an impairment may have occurred including, but not limited to, as a
result of ongoing operating losses, projected decreases in earnings, increases in the weighted average cost of capital, or significant business disruptions. The significant assumptions used to estimate fair value include revenue growth and
profitability, royalty rates, capital spending, depreciation and taxes, foreign currency exchange rates, and a discount rate. By their nature, these projections and assumptions are uncertain. If we were to determine the current fair value of our
investment was less than the carrying value of the investment, then we would assess if the shortfall was of a temporary or permanent nature and write down the investment to its fair value if we concluded the impairment is other than temporary.
Redeemable Interest
We have a 51 percent controlling interest in Yoplait SAS, a consolidated entity. Sodiaal International (Sodiaal) holds the remaining 49 percent interest in
Yoplait SAS. Sodiaal has the ability to put all or a portion of its redeemable interest to us at fair value once per year, up to three times before December 2024. This put option requires us to classify Sodiaals interest as a redeemable
interest outside of equity on our Consolidated Balance Sheets for as long as the put is exercisable by Sodiaal. When the put is no longer exercisable, the redeemable interest will be reclassified to noncontrolling interests on our Consolidated
Balance Sheets. We adjust the value of the redeemable interest through additional paid-in capital on our Consolidated Balance Sheets quarterly to the redeemable interests redemption value, which approximates its fair value. During the second
and third quarters of fiscal 2017, we adjusted the redeemable interests redemption value based on a discounted cash flow model. The significant assumptions used to estimate the redemption value include projected revenue growth and
profitability from our long-range plan, capital spending, depreciation, taxes, foreign currency exchange rates, and a discount rate.
56
Revenue Recognition
We recognize sales revenue when the shipment is accepted by our customer. Sales include shipping and handling charges billed to the customer and are reported
net of consumer coupon redemption, trade promotion and other costs, including estimated allowances for returns, unsalable product, and prompt pay discounts. Sales, use, value-added, and other excise taxes are not recognized in revenue. Coupons are
recorded when distributed, based on estimated redemption rates. Trade promotions are recorded based on estimated participation and performance levels for offered programs at the time of sale. We generally do not allow a right of return. However, on
a limited case-by-case basis with prior approval, we may allow customers to return product. In limited circumstances, product returned in saleable condition is resold to other customers or outlets. Receivables from customers generally do not bear
interest. Terms and collection patterns vary around the world and by channel. The allowance for doubtful accounts represents our estimate of probable non-payments and credit losses in our existing receivables, as determined based on a review of past
due balances and other specific account data. Account balances are written off against the allowance when we deem the amount is uncollectible.
Environmental
Environmental costs relating to
existing conditions caused by past operations that do not contribute to current or future revenues are expensed. Liabilities for anticipated remediation costs are recorded on an undiscounted basis when they are probable and reasonably estimable,
generally no later than the completion of feasibility studies or our commitment to a plan of action.
Advertising Production Costs
We expense the production costs of advertising the first time that the advertising takes place.
Research and Development
All expenditures for
research and development (R&D) are charged against earnings in the period incurred. R&D includes expenditures for new product and manufacturing process innovation, and the annual expenditures are comprised primarily of internal salaries,
wages, consulting, and supplies attributable to R&D activities. Other costs include depreciation and maintenance of research facilities, including assets at facilities that are engaged in pilot plant activities.
Foreign Currency Translation
For all significant
foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at the period-end exchange rates. Income statement accounts are translated using the average exchange rates prevailing
during the period. Translation adjustments are reflected within accumulated other comprehensive loss (AOCI) in stockholders equity. Gains and losses from foreign currency transactions are included in net earnings for the period, except for
gains and losses on investments in subsidiaries for which settlement is not planned for the foreseeable future and foreign exchange gains and losses on instruments designated as net investment hedges. These gains and losses are recorded in AOCI.
Derivative Instruments
All derivatives are
recognized on our Consolidated Balance Sheets at fair value based on quoted market prices or our estimate of their fair value, and are recorded in either current or noncurrent assets or liabilities based on their maturity. Changes in the fair values
of derivatives are recorded in net earnings or other comprehensive income, based on whether the instrument is designated and effective as a hedge transaction and, if so, the type of hedge transaction. Gains or losses on derivative instruments
reported in AOCI are reclassified to earnings in the period the hedged item affects earnings. If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCI are reclassified to earnings at that time. Any
ineffectiveness is recognized in earnings in the current period.
Stock-based Compensation
We generally measure compensation expense for grants of restricted stock units using the value of a share of our stock on the date of grant. We estimate the
value of stock option grants using a Black-Scholes valuation model. Stock-based compensation is recognized straight line over the vesting period. Our stock-based compensation expense is recorded in selling, general and administrative (SG&A)
expenses and cost of sales in our Consolidated Statements of Earnings and allocated to each reportable segment in our segment results.
Certain
equity-based compensation plans contain provisions that accelerate vesting of awards upon retirement, termination, or death of eligible employees and directors. We consider a stock-based award to be vested when the employees retention of the
award is no longer contingent on providing subsequent service. Accordingly, the related compensation cost is generally recognized immediately for awards granted to retirement-eligible individuals or over the period from the grant date to the date
retirement eligibility is achieved, if less than the stated vesting period.
We report the benefits of tax deductions in excess of recognized compensation
cost as a financing cash flow, thereby reducing net operating cash flows and increasing net financing cash flows.
Defined Benefit Pension, Other Postretirement Benefit, and Postemployment Benefit Plans
We sponsor several domestic and foreign defined benefit plans to provide pension, health care, and other welfare benefits to retired employees. Under certain
circumstances, we also provide accruable benefits, primarily severance, to former or inactive employees in
57
the United States, Canada, and Mexico. We recognize an obligation for any of these benefits that vest or accumulate with service. Postemployment benefits that do not vest or accumulate with
service (such as severance based solely on annual pay rather than years of service) are charged to expense when incurred. Our postemployment benefit plans are unfunded.
We recognize the underfunded or overfunded status of a defined benefit pension plan as an asset or liability and recognize changes in the funded status in the
year in which the changes occur through AOCI.
Use of Estimates
Preparing our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires us to make estimates
and assumptions that affect reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These
estimates include our accounting for 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. Actual results could differ from our estimates.
Other New Accounting Standards
In the first quarter of fiscal 2017, we adopted new accounting requirements for the presentation of certain investments using the net asset value, providing a
practical expedient to exclude such investments from categorization within the fair value hierarchy and separate disclosure. We adopted the guidance retrospectively and restated the fiscal 2016 fair value of plan asset tables in Note 13. The
adoption of this guidance did not impact our results of operations or financial position.
In the first quarter of fiscal 2017, we adopted new accounting
requirements which permit reporting entities with a fiscal year-end that does not coincide with a month-end to apply a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is
closest to the entitys fiscal year-end and apply such practical expedient consistently to all plans. The adoption of this guidance did not have a material impact on our results of operations or financial position.
In the fourth quarter of fiscal 2016, we adopted new accounting requirements for the presentation of deferred tax assets and liabilities, requiring noncurrent
classification for all deferred tax assets and liabilities on the statement of financial position. This presentation change has been implemented retroactively. The adoption of this guidance did not have a material impact on our financial position.
In the first quarter of fiscal 2016, we adopted new accounting requirements for the classification of debt issuance costs presented in the balance sheet
as a direct reduction from the carrying amount of the debt liability. This presentation change has been implemented retroactively. The adoption of this guidance did not have a material impact on our financial position.
In the second quarter of fiscal 2015, we adopted new accounting requirements for share-based payment awards issued based upon specific performance targets.
The adoption of this guidance did not have a material impact on our results of operations or financial position.
In the first quarter of fiscal 2015, we
adopted new accounting requirements on the financial statement presentation of unrecognized tax benefits when a net operating loss, a similar tax loss, or a tax credit carryforward exists. The adoption of this guidance did not have an impact on our
results of operations or financial position.
NOTE 3. ACQUISITION AND DIVESTITURES
During the second quarter of fiscal 2017, we sold our Martel, Ohio manufacturing facility in our Convenience Stores & Foodservice segment and
simultaneously entered into a co-packing agreement with the purchaser. We received $17.5 million in cash, and recorded a pre-tax loss of $13.5 million.
During the fourth quarter of fiscal 2016, we sold our General Mills de Venezuela CA subsidiary to a third party and exited our business in Venezuela. As a
result of this transaction, we recorded a pre-tax loss of $37.6 million. In addition, we sold our General Mills Argentina S.A. foodservice business in Argentina to a third party and recorded a pre-tax loss of $14.8 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 a pre-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 the
Green Giant
brand in certain markets outside of North America.
During the second quarter of fiscal 2015, we acquired Annies, a publicly
traded food company headquartered in Berkeley, California, for an aggregate purchase price of $821.2 million, which we funded by issuing debt. We consolidated Annies into our Consolidated Balance Sheets and recorded goodwill of $589.8 million,
an indefinite lived intangible asset for the
Annies
brand of $244.5 million, and a finite lived customer relationship asset of $23.9 million. The pro forma effects of this acquisition were not material.
58
NOTE 4. RESTRUCTURING, IMPAIRMENT, AND OTHER EXIT COSTS
We view our restructuring activities as actions that help us meet our long-term growth targets. Activities we undertake must meet internal rate of return and
net present value targets. Each restructuring action normally takes one to two years to complete. At completion (or as each major stage is completed in the case of multi-year programs), the project begins to deliver cash savings and/or reduced
depreciation. These activities result in various restructuring costs, including asset write-offs, exit charges including severance, contract termination fees, and decommissioning and other costs. Accelerated depreciation associated with restructured
assets, as used in the context of our disclosures regarding restructuring activity, refers to the increase in depreciation expense caused by shortening the useful life or updating the salvage value of depreciable fixed assets to coincide with the
end of production under an approved restructuring plan. Any impairment of the asset is recognized immediately in the period the plan is approved.
We are
currently pursuing several multi-year restructuring initiatives designed to increase our efficiency and focus our business behind our key growth strategies. Charges recorded in fiscal 2017 related to these initiatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
|
|
In Millions
|
|
Severance
|
|
|
Asset
Write-offs
|
|
|
Pension
Related
|
|
|
Accelerated
Depreciation
|
|
|
Other
|
|
|
Total
|
|
Global reorganization
|
|
$
|
66.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5.8
|
|
|
$
|
72.1
|
|
Closure of Melbourne, Australia plant
|
|
|
11.4
|
|
|
|
4.5
|
|
|
|
|
|
|
|
5.6
|
|
|
|
0.4
|
|
|
|
21.9
|
|
Restructuring of certain international product lines
|
|
|
7.0
|
|
|
|
37.0
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
1.4
|
|
|
|
45.1
|
|
Closure of Vineland, New Jersey plant
|
|
|
12.3
|
|
|
|
7.9
|
|
|
|
1.5
|
|
|
|
14.5
|
|
|
|
5.2
|
|
|
|
41.4
|
|
Project Compass
|
|
|
(1.5
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
(0.4
|
)
|
Project Century
|
|
|
(1.0
|
)
|
|
|
13.0
|
|
|
|
0.7
|
|
|
|
18.5
|
|
|
|
12.8
|
|
|
|
44.0
|
|
Total
|
|
$
|
94.5
|
|
|
$
|
62.5
|
|
|
$
|
2.2
|
|
|
$
|
38.5
|
|
|
$
|
26.4
|
|
|
$
|
224.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of fiscal 2017, we approved restructuring actions designed to better align our organizational structure
with our strategic initiatives. This action will affect approximately 600 positions, and we expect to incur approximately $75 million of net expenses relating to these actions, all of which will be cash. We recorded $72.1 million of restructuring
charges relating to these actions in fiscal 2017. 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, of which approximately $3 million will be cash. We recorded $21.9 million of restructuring charges relating to this action in
fiscal 2017. We expect this 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 Greater China operations. We expect to incur approximately $42 million of net expenses related to these actions, most of which will be non-cash. We recorded $45.1 million of restructuring charges relating to these
actions in fiscal 2017. We expect these actions to be completed by the end of fiscal 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 380 positions, and we expect to incur approximately $58 million of net expenses related to this
action, of which approximately $19 million will be cash. We recorded $41.4 million of restructuring charges relating to this action in fiscal 2017. We expect this action to be completed by the end of fiscal 2019.
59
Charges recorded in fiscal 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
In Millions
|
|
Severance
|
|
|
Asset
Write-offs
|
|
|
Pension
Related
|
|
|
Accelerated
Depreciation
|
|
|
Other
|
|
|
Total
|
|
Project Compass
|
|
$
|
45.4
|
|
|
$
|
|
|
|
$
|
1.4
|
|
|
$
|
|
|
|
$
|
7.9
|
|
|
$
|
54.7
|
|
Project Catalyst
|
|
|
(8.7
|
)
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.5
|
)
|
Project Century
|
|
|
30.9
|
|
|
|
30.7
|
|
|
|
19.1
|
|
|
|
76.5
|
|
|
|
25.4
|
|
|
|
182.6
|
|
Total
|
|
$
|
67.6
|
|
|
$
|
31.9
|
|
|
$
|
20.5
|
|
|
$
|
76.5
|
|
|
$
|
33.3
|
|
|
$
|
229.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 fiscal 2017, we reduced the estimate of charges related to this action by $0.4 million. We recorded $54.7 million of restructuring charges relating to this action in fiscal 2016. This action was completed in fiscal 2017.
In fiscal 2015, we announced Project Century (Century) which initially involved a review of our North American manufacturing and distribution network to
streamline operations and identify potential capacity reductions. In fiscal 2016, we broadened the scope of Century to identify opportunities to streamline our supply chain outside of North America.
As part of Century, in the second quarter of fiscal 2016, we approved a restructuring plan to close manufacturing facilities in our Europe &
Australia segment supply chain located in Berwick, United Kingdom and East Tamaki, New Zealand. These actions affected 287 positions and we incurred $31.8 million of net expenses related to these actions, of which $12 million was cash. We recorded
$1.8 million of restructuring charges relating to these actions in fiscal 2017 and $30.0 million in fiscal 2016. These actions were completed in fiscal 2017.
As part of Century, in the first quarter of fiscal 2016, we approved a restructuring plan to close our West Chicago, Illinois cereal and dry dinner
manufacturing plant in our North America Retail segment supply chain. This action affected 484 positions, and we expect to incur approximately $104 million of net expenses relating to this action, of which approximately $41 million will be cash. We
recorded $23.2 million of restructuring charges relating to this action in fiscal 2017 and $79.2 million in fiscal 2016. We expect this action to be completed by the end of fiscal 2018.
As part of Century, in the first quarter of fiscal 2016, we approved a restructuring plan to close our Joplin, Missouri snacks plant in our North America
Retail segments supply chain. This action affected 125 positions, and we incurred $6.6 million of net expenses relating to this action, of which less than $1 million was cash. We recorded $6.3 million of restructuring charges relating to this
action in fiscal 2016. This action was completed in fiscal 2016.
Charges recorded in fiscal 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015
|
|
In Millions
|
|
Severance
|
|
|
Asset
Write-offs
|
|
|
Pension
Related
|
|
|
Accelerated
Depreciation
|
|
|
Other
|
|
|
Total
|
|
Project Catalyst
|
|
$
|
121.5
|
|
|
$
|
12.3
|
|
|
$
|
6.6
|
|
|
$
|
|
|
|
$
|
8.0
|
|
|
$
|
148.4
|
|
Project Century
|
|
|
44.3
|
|
|
|
42.3
|
|
|
|
31.2
|
|
|
|
53.1
|
|
|
|
10.9
|
|
|
|
181.8
|
|
Combination of certain operational facilities
|
|
|
13.0
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
13.9
|
|
Charges associated with restructuring actions previously
announced
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
Total
|
|
$
|
178.2
|
|
|
$
|
55.3
|
|
|
$
|
37.8
|
|
|
$
|
53.1
|
|
|
$
|
19.1
|
|
|
$
|
343.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the second quarter of fiscal 2015, we approved Project Catalyst, a restructuring plan to increase organizational
effectiveness and reduce overhead expense. In connection with this project, 759 positions were impacted, primarily in the United States. We incurred $140.9 million of net expenses relating to this action of which approximately $94 million was cash.
We recorded $148.4 million of restructuring charges relating to this action in fiscal 2015. This action was substantially completed in fiscal 2015.
As
part of Century, in the third quarter of fiscal 2015, we approved a restructuring plan to reduce our refrigerated dough capacity and exit our Midland, Ontario, Canada and New Albany, Indiana facilities, which support our North America Retail and
Convenience Stores & Foodservice segments supply chains. The Midland action affected 94 positions and we expect to incur approximately $13 million of net expenses relating to this action, of which approximately $7 million will be
cash. We recorded $1.8 million of restructuring charges relating to this action in fiscal 2017, $2.7 million in fiscal 2016 and $6.5 million in fiscal 2015. The New Albany action will affect 412 positions, and we expect to incur approximately $83
million of net expenses relating to this action of which approximately $40 million will be cash. We recorded $14.6 million of restructuring charges relating to this action in fiscal 2017, $17.1 million in fiscal 2016 and $51.3 million in fiscal
2015. We anticipate these actions will be completed by the end of fiscal 2018.
60
As part of Century, in the second quarter of fiscal 2015, we approved a restructuring plan to consolidate yogurt
manufacturing capacity and exit our Methuen, Massachusetts facility in our North America Retail and Convenience Stores & Foodservice segments supply chains. This action affected 170 positions. We incurred $59.7 million of net expenses
relating to this action of which $13 million was cash. We recorded $15.6 million of restructuring charges relating to this action in fiscal 2016 and $43.6 million in fiscal 2015. This action was substantially completed in fiscal 2017.
As part of Century, in the second quarter of fiscal 2015, we approved a restructuring plan to eliminate excess cereal and dry mix capacity and exit our Lodi,
California facility in our North America Retail segment supply chain. This action affected 409 positions. We incurred $95.3 million of net expenses related to this action of which $22 million was cash. We recorded $1.5 million of restructuring
charges relating to this action in fiscal 2017, $30.6 million in fiscal 2016 and $63.2 million in fiscal 2015. This action was substantially completed in fiscal 2016.
In addition to the actions taken at certain facilities described above, we incurred restructuring charges related to Century of $1.1 million in fiscal 2017,
none of which was cash, $1.1 million in fiscal 2016 and $17.2 million in fiscal 2015.
During the first quarter of fiscal 2015, we approved a plan to
combine certain Yoplait and General Mills operational facilities within our North America Retail and Europe & Australia segments to increase efficiencies and reduce costs. This action affected approximately 240 positions. We expect to
incur $15 million of net expenses relating to this action of which $14 million will be cash. We recorded $13.9 million of restructuring charges in fiscal 2015. We anticipate these actions will be completed by the end of fiscal 2018.
We paid cash related to restructuring initiatives of $107.8 million in fiscal 2017, $122.6 million in fiscal 2016 and $63.6 million in fiscal 2015.
In addition to restructuring charges, we expect to incur approximately $130 million of additional project-related costs, which will be recorded in cost of
sales, all of which will be cash. We recorded project-related costs in cost of sales of $43.9 million in fiscal 2017, $57.5 million in fiscal 2016 and $13.2 million in fiscal 2015. We paid cash for project-related costs of $46.9 million in fiscal
2017, $54.5 million in fiscal 2016 and $9.7 million in fiscal 2015.
Restructuring charges and project-related costs are classified in our Consolidated
Statements of Earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Cost of sales
|
|
$
|
41.5
|
|
|
$
|
78.4
|
|
|
$
|
59.6
|
|
Restructuring, impairment, and other exit costs
|
|
|
182.6
|
|
|
|
151.4
|
|
|
|
283.9
|
|
Total restructuring charges
|
|
|
224.1
|
|
|
|
229.8
|
|
|
|
343.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project-related costs classified in cost of sales
|
|
$
|
43.9
|
|
|
$
|
57.5
|
|
|
$
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
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 25, 2014
|
|
$
|
3.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.5
|
|
Fiscal 2015 charges, including foreign
currency translation
|
|
|
176.4
|
|
|
|
0.6
|
|
|
|
8.1
|
|
|
|
185.1
|
|
Utilized in fiscal 2015
|
|
|
(61.3
|
)
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
(67.8
|
)
|
Reserve balance as of May 31, 2015
|
|
|
118.6
|
|
|
|
0.6
|
|
|
|
1.6
|
|
|
|
120.8
|
|
Fiscal 2016 charges, including foreign
currency translation
|
|
|
64.3
|
|
|
|
1.6
|
|
|
|
4.3
|
|
|
|
70.2
|
|
Utilized in fiscal 2016
|
|
|
(109.3
|
)
|
|
|
(0.7
|
)
|
|
|
(4.4
|
)
|
|
|
(114.4
|
)
|
Reserve balance as of May 29, 2016
|
|
|
73.6
|
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
76.6
|
|
Fiscal 2017 charges, including foreign
currency translation
|
|
|
95.0
|
|
|
|
0.9
|
|
|
|
8.1
|
|
|
|
104.0
|
|
Utilized in fiscal 2017
|
|
|
(86.8
|
)
|
|
|
(1.7
|
)
|
|
|
(7.1
|
)
|
|
|
(95.6
|
)
|
Reserve balance as of May 28, 2017
|
|
$
|
81.8
|
|
|
$
|
0.7
|
|
|
$
|
2.5
|
|
|
$
|
85.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The charges recognized in the roll forward of our reserves for restructuring and other exit costs do not include items charged
directly to expense (e.g., asset impairment charges, the gain or loss on the sale of restructured assets, and the write-off of spare parts) and other periodic exit costs recognized as incurred, as those items are not reflected in our restructuring
and other exit cost reserves on our Consolidated Balance Sheets.
NOTE 5. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
We have a 50 percent equity interest in Cereal Partners Worldwide (CPW), which manufactures and markets ready-to-eat cereal products in more than 130
countries outside the United States and Canada. CPW also markets cereal bars in several European countries and manufactures private label cereals for customers in the United Kingdom. We have guaranteed a portion of CPWs debt and its pension
obligation in the United Kingdom.
We also have a 50 percent equity interest in Häagen-Dazs Japan, Inc. (HDJ). This joint venture manufactures and
markets
Häagen-Dazs
ice cream products and frozen novelties.
Results from our CPW and HDJ joint ventures are reported for the 12 months ended
March 31.
Joint venture related balance sheet activity follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Cumulative investments
|
|
$
|
505.3
|
|
|
$
|
518.9
|
|
Goodwill and other intangibles
|
|
|
472.0
|
|
|
|
469.2
|
|
Aggregate advances included in cumulative investments
|
|
|
284.7
|
|
|
|
300.3
|
|
|
|
|
|
|
|
|
|
|
Joint venture earnings and cash flow activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Sales to joint ventures
|
|
$
|
7.0
|
|
|
$
|
10.5
|
|
|
$
|
11.6
|
|
Net advances (repayments)
|
|
|
(3.3
|
)
|
|
|
(63.9
|
)
|
|
|
102.4
|
|
Dividends received
|
|
|
75.6
|
|
|
|
75.1
|
|
|
|
72.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Summary combined financial information for the joint ventures on a 100 percent basis follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
CPW
|
|
$
|
1,648.4
|
|
|
$
|
1,674.8
|
|
|
$
|
1,894.5
|
|
HDJ
|
|
|
435.1
|
|
|
|
369.4
|
|
|
|
370.2
|
|
Total net sales
|
|
|
2,083.5
|
|
|
|
2,044.2
|
|
|
|
2,264.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
865.9
|
|
|
|
867.6
|
|
|
|
925.4
|
|
Earnings before income taxes
|
|
|
243.3
|
|
|
|
234.8
|
|
|
|
220.9
|
|
Earnings after income taxes
|
|
|
190.3
|
|
|
|
186.7
|
|
|
|
170.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Current assets
|
|
$
|
849.7
|
|
|
$
|
814.1
|
|
Noncurrent assets
|
|
|
858.9
|
|
|
|
959.9
|
|
Current liabilities
|
|
|
1,469.6
|
|
|
|
1,457.3
|
|
Noncurrent liabilities
|
|
|
55.2
|
|
|
|
81.7
|
|
|
|
|
|
|
|
|
|
|
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
The components of goodwill and other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Goodwill
|
|
$
|
8,747.2
|
|
|
$
|
8,741.2
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
Brands and other indefinite-lived intangibles
|
|
|
4,161.1
|
|
|
|
4,147.5
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Franchise agreements, customer relationships, and other finite-lived intangibles
|
|
|
524.8
|
|
|
|
536.9
|
|
Less accumulated amortization
|
|
|
(155.5
|
)
|
|
|
(145.8
|
)
|
Intangible assets subject to amortization
|
|
|
369.3
|
|
|
|
391.1
|
|
Other intangible assets
|
|
|
4,530.4
|
|
|
|
4,538.6
|
|
Total
|
|
$
|
13,277.6
|
|
|
$
|
13,279.8
|
|
|
|
|
|
|
|
|
|
|
Based on the carrying value of finite-lived intangible assets as of May 28, 2017, amortization expense for each of the
next five fiscal years is estimated to be approximately $28 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 and 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 16 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.
63
The changes in the carrying amount of goodwill for fiscal 2015, 2016, and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
North
America
Retail
|
|
|
Convenience
Stores &
Foodservice
|
|
|
Europe &
Australia
|
|
|
Asia & Latin
America
|
|
|
Joint
Ventures
|
|
|
Total
|
|
Balance as of May 25, 2014
|
|
$
|
5,975.1
|
|
|
$
|
921.1
|
|
|
$
|
866.1
|
|
|
$
|
390.0
|
|
|
$
|
498.2
|
|
|
$
|
8,650.5
|
|
Acquisition
|
|
|
589.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
589.8
|
|
Other activity, primarily foreign currency
translation
|
|
|
(18.7
|
)
|
|
|
|
|
|
|
(147.0
|
)
|
|
|
(103.0
|
)
|
|
|
(96.7
|
)
|
|
|
(365.4
|
)
|
Balance as of May 31, 2015
|
|
|
6,546.2
|
|
|
|
921.1
|
|
|
|
719.1
|
|
|
|
287.0
|
|
|
|
401.5
|
|
|
|
8,874.9
|
|
Acquisitions
|
|
|
54.1
|
|
|
|
|
|
|
|
|
|
|
|
29.4
|
|
|
|
|
|
|
|
83.5
|
|
Divestitures
|
|
|
(184.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
(186.4
|
)
|
Other activity, primarily foreign currency translation
|
|
|
(5.5
|
)
|
|
|
|
|
|
|
(2.6
|
)
|
|
|
(27.4
|
)
|
|
|
4.7
|
|
|
|
(30.8
|
)
|
Balance as of May 29, 2016
|
|
|
6,410.3
|
|
|
|
921.1
|
|
|
|
716.5
|
|
|
|
287.1
|
|
|
|
406.2
|
|
|
|
8,741.2
|
|
Divestiture
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.3
|
)
|
Other activity, primarily foreign currency
translation
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
(15.7
|
)
|
|
|
25.3
|
|
|
|
2.5
|
|
|
|
8.3
|
|
Balance as of May 28, 2017
|
|
$
|
6,406.5
|
|
|
$
|
918.8
|
|
|
$
|
700.8
|
|
|
$
|
312.4
|
|
|
$
|
408.7
|
|
|
$
|
8,747.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes in the carrying amount of other intangible assets for fiscal 2015, 2016, and 2017 are as follows:
|
|
|
|
|
In Millions
|
|
Total
|
|
Balance as of May 25, 2014
|
|
$
|
5,014.3
|
|
Acquisition
|
|
|
268.4
|
|
Impairment charge
|
|
|
(260.0
|
)
|
Other activity, primarily amortization and foreign
currency translation
|
|
|
(345.7
|
)
|
Balance as of May 31, 2015
|
|
|
4,677.0
|
|
Acquisitions
|
|
|
30.1
|
|
Divestiture
|
|
|
(119.6
|
)
|
Other activity, primarily amortization and foreign
currency translation
|
|
|
(48.9
|
)
|
Balance as of May 29, 2016
|
|
|
4,538.6
|
|
Other activity, primarily amortization and foreign
currency translation
|
|
|
(8.2
|
)
|
Balance as of May 28, 2017
|
|
$
|
4,530.4
|
|
|
|
|
|
|
Our annual goodwill intangible asset test was performed on the first day of the second quarter of fiscal 2017. As of the
assessment date, 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.
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.
64
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
|
%
|
|
|
|
|
|
|
|
|
|
While having significant coverage as of our fiscal 2017 assessment date, the
Progresso, Green Giant, and Food Should
Taste Good
brand intangible assets and U.S. Yogurt reporting unit had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.
In fiscal 2015, we made a strategic decision to redirect certain resources supporting our Green Giant business in our North America Retail segment to other
businesses within the segment. Therefore, future sales and profitability projections in our long-range plan for this business declined. As a result of this triggering event, we performed an interim impairment assessment of the
Green Giant
brand intangible asset as of May 31, 2015, and determined that the fair value of the brand asset no longer exceeded the carrying value of the asset. Significant assumptions used in that assessment included our updated long-range cash flow
projections for the Green Giant business, an updated royalty rate, a weighted-average cost of capital, and a tax rate. We recorded a $260.0 million impairment charge in restructuring, impairment, and other exit costs in fiscal 2015 related to this
asset.
NOTE 7. FINANCIAL INSTRUMENTS, RISK MANAGEMENT ACTIVITIES, AND FAIR VALUES
FINANCIAL INSTRUMENTS
The carrying values of cash and
cash equivalents, receivables, accounts payable, other current liabilities, and notes payable approximate fair value. Marketable securities are carried at fair value. As of May 28, 2017 and May 29, 2016, a comparison of cost and market
values of our marketable debt and equity securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Gross
Gains
|
|
|
Gross
Losses
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
$
|
265.4
|
|
|
$
|
165.7
|
|
|
$
|
265.5
|
|
|
$
|
165.8
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
|
|
Equity securities
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
9.9
|
|
|
|
8.4
|
|
|
|
8.1
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
267.2
|
|
|
$
|
167.5
|
|
|
$
|
275.4
|
|
|
$
|
174.2
|
|
|
$
|
8.2
|
|
|
$
|
6.7
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no realized gains or losses from sales of available-for-sale marketable securities. Gains and losses are determined
by specific identification. Classification of marketable securities as current or noncurrent is dependent upon our intended holding period and the securitys maturity date. The aggregate unrealized gains and losses on available-for-sale
securities, net of tax effects, are classified in AOCI within stockholders equity.
Scheduled maturities of our marketable securities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
In Millions
|
|
Cost
|
|
|
Fair
Value
|
|
Under 1 year (current)
|
|
$
|
265.4
|
|
|
$
|
265.5
|
|
Equity securities
|
|
|
1.8
|
|
|
|
9.9
|
|
Total
|
|
$
|
267.2
|
|
|
$
|
275.4
|
|
|
|
|
|
|
|
|
|
|
As of May 28, 2017, we did not any have cash and cash equivalents pledged as collateral for derivative contracts. As of
May 28, 2017, $19.6 million of certain accounts receivable were pledged as collateral against a foreign uncommitted line of credit.
The fair value
and carrying amounts of long-term debt, including the current portion, were $8,547.0 million and $8,247.6 million, respectively, as of May 28, 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.
65
RISK MANAGEMENT ACTIVITIES
As a part of our ongoing operations, we are exposed to market risks such as changes in interest and foreign currency exchange rates and commodity and equity
prices. To manage these risks, we may enter into various derivative transactions (e.g., futures, options, and swaps) pursuant to our established policies.
COMMODITY PRICE RISK
Many commodities we use in the
production and distribution of our products are exposed to market price risks. We utilize derivatives to manage price risk for our principal ingredients and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), dairy
products, natural gas, and diesel fuel. Our primary objective when entering into these derivative contracts is to achieve certainty with regard to the future price of commodities purchased for use in our supply chain. We manage our exposures through
a combination of purchase orders, long-term contracts with suppliers, exchange-traded futures and options, and over-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.
Although we do not meet the criteria for cash flow hedge accounting, we believe that these instruments are effective in achieving our objective of providing
certainty in the future price of commodities purchased for use in our supply chain. Accordingly, for purposes of measuring segment operating performance these gains and losses are reported in unallocated corporate items outside of segment operating
results until such time that the exposure we are managing affects earnings. At that time we reclassify the gain or loss from unallocated corporate items to segment operating profit, allowing our operating segments to realize the economic effects of
the derivative without experiencing any resulting mark-to-market volatility, which remains in unallocated corporate items.
Unallocated corporate items
for fiscal 2017, 2016 and 2015 included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net loss on mark-to-market valuation of commodity positions
|
|
$
|
(22.0
|
)
|
|
$
|
(69.1
|
)
|
|
$
|
(163.7
|
)
|
Net loss on commodity positions reclassified from unallocated corporate items to segment operating
profit
|
|
|
32.0
|
|
|
|
127.9
|
|
|
|
84.4
|
|
Net mark-to-market revaluation of certain grain
inventories
|
|
|
3.9
|
|
|
|
4.0
|
|
|
|
(10.4
|
)
|
Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate
items
|
|
$
|
13.9
|
|
|
$
|
62.8
|
|
|
$
|
(89.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 28, 2017, the net notional value of commodity derivatives was $410.3 million, of which $289.6 million related
to agricultural inputs and $120.7 million related to energy inputs. These contracts relate to inputs that generally will be utilized within the next 12 months.
INTEREST RATE RISK
We are exposed to interest rate
volatility with regard to future issuances of fixed-rate debt, and existing and future issuances of floating-rate debt. Primary exposures include U.S. Treasury rates, LIBOR, Euribor, and commercial paper rates in the United States and Europe. We use
interest rate swaps, forward-starting interest rate swaps, and treasury locks to hedge our exposure to interest rate changes, to reduce the volatility of our financing costs, and to achieve a desired proportion of fixed rate versus floating-rate
debt, based on current and projected market conditions. Generally under these swaps, we agree with a counterparty to exchange the difference between fixed-rate and floating-rate interest amounts based on an agreed upon notional principal amount.
Floating Interest Rate Exposures Floating-to-fixed interest rate swaps are accounted for as cash flow hedges, as are all hedges of forecasted
issuances of debt. Effectiveness is assessed based on either the perfectly effective hypothetical derivative method or changes in the present value of interest payments on the underlying debt. Effective gains and losses deferred to AOCI are
reclassified into earnings over the life of the associated debt. Ineffective gains and losses are recorded as net interest. The amount of hedge ineffectiveness was less than $1 million in each of fiscal 2017, 2016, and 2015.
66
Fixed Interest Rate Exposures Fixed-to-floating interest rate swaps are accounted for as fair value hedges
with effectiveness assessed based on changes in the fair value of the underlying debt and derivatives, using incremental borrowing rates currently available on loans with similar terms and maturities. Ineffective gains and losses on these
derivatives and the underlying hedged items are recorded as net interest. The amount of hedge ineffectiveness was a $4.3 million gain in fiscal 2017, less than $1 million in fiscal 2016, and a $1.6 million gain in fiscal 2015.
In advance of planned debt financing, in the first quarter of fiscal 2017 and the third quarter of fiscal 2016, we entered into $100 million and $400 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
million
10-year
fixed-rate notes.
In fiscal 2015, we entered into swaps to convert $500.0 million of 1.4 percent
fixed-rate notes due October 20, 2017, and $500.0 million of 2.2 percent fixed-rate notes due October 21, 2019, to floating rates.
As of
May 28, 2017, the pre-tax amount of cash-settled interest rate hedge gain or loss remaining in AOCI, which will be reclassified to earnings over the remaining term of the related underlying debt, follows:
|
|
|
|
|
In Millions
|
|
Gain/(Loss)
|
|
5.65% notes due February 15, 2019
|
|
|
0.8
|
|
3.15% notes due December 15, 2021
|
|
|
(45.0
|
)
|
1.0% notes due April 27, 2023
|
|
|
(1.4
|
)
|
3.65% notes due February 15, 2024
|
|
|
12.0
|
|
3.2% notes due February 10, 2027
|
|
|
16.6
|
|
1.5% notes due April 27, 2027
|
|
|
(3.2
|
)
|
5.4% notes due June 15, 2040
|
|
|
(12.9
|
)
|
4.15% notes due February 15, 2043
|
|
|
10.1
|
|
Net pre-tax hedge loss in AOCI
|
|
$
|
(23.0
|
)
|
|
|
|
|
|
The following table summarizes the notional amounts and weighted-average interest rates of our interest rate derivatives.
Average floating rates are based on rates as of the end of the reporting period.
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Pay-floating swaps - notional amount
|
|
$
|
1,000.0
|
|
|
$
|
1,000.0
|
|
Average receive rate
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
Average pay rate
|
|
|
1.6
|
%
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
The swap contracts mature as follows:
|
|
|
|
|
In Millions
|
|
Pay Floating
|
|
2018
|
|
$
|
500.0
|
|
2020
|
|
$
|
500.0
|
|
Total
|
|
$
|
1,000.0
|
|
|
|
|
|
|
67
The following tables reconcile the net fair values of assets and liabilities subject to offsetting arrangements
that are recorded in our Consolidated Balance Sheets to the net fair values that could be reported in our Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 28, 2017
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not
Offset in the
Balance Sheet (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not
Offset in the
Balance Sheet (e)
|
|
|
|
|
In Millions
|
|
Gross
Amounts
of
Recognized
Assets
|
|
|
Gross
Liabilities
Offset in
the
Balance
Sheet (a)
|
|
|
Net
Amounts
of Assets
(b)
|
|
|
Financial
Instruments
|
|
|
Cash
Collateral
Received
|
|
|
Net
Amount
(c)
|
|
|
Gross
Amounts
of
Recognized
Liabilities
|
|
|
Gross
Assets
Offset in
the Balance
Sheet (a)
|
|
|
Net
Amounts of
Liabilities
(b)
|
|
|
Financial
Instruments
|
|
|
Cash
Collateral
Pledged
|
|
|
Net
Amount
(d)
|
|
Commodity contracts
|
|
|
$11.5
|
|
|
|
$
|
|
|
|
$ 11.5
|
|
|
|
$ (7.2)
|
|
|
|
$
|
|
|
|
$ 4.3
|
|
|
|
$(8.2)
|
|
|
|
$
|
|
|
|
$(8.2)
|
|
|
|
$7.2
|
|
|
|
$
|
|
|
|
$(1.0)
|
|
Interest rate contracts
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
|
|
(0.5)
|
|
|
|
|
|
|
|
0.4
|
|
|
|
(0.5)
|
|
|
|
|
|
|
|
(0.5)
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
16.5
|
|
|
|
|
|
|
|
16.5
|
|
|
|
(7.2)
|
|
|
|
|
|
|
|
9.3
|
|
|
|
(10.2)
|
|
|
|
|
|
|
|
(10.2)
|
|
|
|
7.2
|
|
|
|
|
|
|
|
(3.0)
|
|
Equity contracts
|
|
|
1.9
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$30.8
|
|
|
|
$
|
|
|
|
$30.8
|
|
|
|
$(14.9)
|
|
|
|
$
|
|
|
|
$15.9
|
|
|
|
$(18.9)
|
|
|
|
$
|
|
|
|
$(18.9)
|
|
|
|
$14.9
|
|
|
|
$
|
|
|
|
$(4.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes related collateral offset in our Consolidated Balance Sheets.
|
(b)
|
Net fair value as recorded in our Consolidated Balance Sheets.
|
(c)
|
Fair value of assets that could be reported net in our Consolidated Balance Sheets.
|
(d)
|
Fair value of liabilities that could be reported net in our Consolidated Balance Sheets.
|
(e)
|
Fair value of assets and liabilities reported on a gross basis in our Consolidated Balance Sheets.
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, 2016
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not
Offset in the
Balance Sheet (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not
Offset in the
Balance Sheet (e)
|
|
|
|
|
In Millions
|
|
Gross
Amounts
of
Recognized
Assets
|
|
|
Gross
Liabilities
Offset in
the
Balance
Sheet (a)
|
|
|
Net
Amounts
of Assets
(b)
|
|
|
Financial
Instruments
|
|
|
Cash
Collateral
Received
|
|
|
Net
Amount
(c)
|
|
|
Gross
Amounts
of
Recognized
Liabilities
|
|
|
Gross
Assets
Offset in
the
Balance
Sheet (a)
|
|
|
Net
Amounts
of
Liabilities
(b)
|
|
|
Financial
Instruments
|
|
|
Cash
Collateral
Pledged
|
|
|
Net
Amount
(d)
|
|
Commodity contracts
|
|
$
|
4.4
|
|
|
$
|
|
|
|
$
|
4.4
|
|
|
$
|
(3.9
|
)
|
|
$
|
|
|
|
$
|
0.5
|
|
|
$
|
(22.2
|
)
|
|
$
|
|
|
|
$
|
(22.2
|
)
|
|
$
|
3.9
|
|
|
$
|
7.5
|
|
|
$
|
(10.8
|
)
|
Interest rate contracts
|
|
|
8.5
|
|
|
|
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
8.5
|
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.0
|
)
|
Foreign exchange contracts
|
|
|
25.4
|
|
|
|
|
|
|
|
25.4
|
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
16.7
|
|
|
|
(13.7
|
)
|
|
|
|
|
|
|
(13.7
|
)
|
|
|
8.7
|
|
|
|
|
|
|
|
(5.0
|
)
|
Equity contracts
|
|
|
2.4
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40.7
|
|
|
$
|
|
|
|
$
|
40.7
|
|
|
$
|
(12.6
|
)
|
|
$
|
|
|
|
$
|
28.1
|
|
|
$
|
(38.9
|
)
|
|
$
|
|
|
|
$
|
(38.9
|
)
|
|
$
|
12.6
|
|
|
$
|
7.5
|
|
|
$
|
(18.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes related collateral offset in our Consolidated Balance Sheets.
|
(b)
|
Net fair value as recorded in our Consolidated Balance Sheets.
|
(c)
|
Fair value of assets that could be reported net in our Consolidated Balance Sheets.
|
(d)
|
Fair value of liabilities that could be reported net in our Consolidated Balance Sheets.
|
(e)
|
Fair value of assets and liabilities reported on a gross basis in our Consolidated Balance Sheets.
|
FOREIGN
EXCHANGE RISK
Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign currency cash flows related to third party
purchases, intercompany loans, product shipments, and foreign-denominated debt. We are also exposed to the translation of foreign currency earnings to the U.S. dollar. Our principal exposures are to the Australian dollar, Brazilian real, British
pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, Mexican peso, and Swiss franc. We primarily use foreign currency forward contracts to selectively hedge our foreign currency cash flow exposures. We also generally swap our
foreign-denominated commercial paper borrowings and nonfunctional currency intercompany loans back to U.S. dollars or the functional currency of the entity with foreign exchange exposure. The gains or losses on these derivatives offset the foreign
currency revaluation gains or losses recorded in earnings on the associated borrowings. We generally do not hedge more than 18 months in advance.
As of
May 28, 2017, the net notional value of foreign exchange derivatives was $850.2 million. The amount of hedge ineffectiveness was less than $1 million in each of fiscal 2017, 2016, and 2015.
We also have many net investments in foreign subsidiaries that are denominated in euros. We previously hedged a portion of these net investments by issuing
euro-denominated commercial paper and foreign exchange forward contracts. As of May 28, 2017, we hedged a portion of these net investments with 2,200 million of euro denominated bonds. As of May 28, 2017, we had deferred net
foreign currency transaction losses of $39.1 million in AOCI associated with net investment hedging activity.
Venezuela is a highly inflationary
economy and as such, we remeasured the value of the assets and liabilities of our former Venezuelan subsidiary based on the exchange rate at which we expected to remit dividends in U.S. dollars from the SIMADI market. In fiscal 2015, we recorded an
$8 million foreign exchange loss. In the fourth quarter of fiscal 2016, we sold our General Mills de Venezuela CA subsidiary to a third party and exited our business in Venezuela.
EQUITY INSTRUMENTS
Equity price movements affect our
compensation expense as certain investments made by our employees in our deferred compensation plan are revalued. We use equity swaps to manage this risk. As of May 28, 2017, the net notional amount of our equity swaps was $138.9 million. These
swap contracts mature in fiscal 2018.
69
FAIR VALUE MEASUREMENTS AND FINANCIAL STATEMENT PRESENTATION
The fair values of our assets, liabilities, and derivative positions recorded at fair value and their respective levels in the fair value hierarchy as of
May 28, 2017 and May 29, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 28, 2017
|
|
|
May 28, 2017
|
|
|
|
Fair Values of Assets
|
|
|
Fair Values of Liabilities
|
|
In Millions
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (a) (b)
|
|
$
|
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
(0.4
|
)
|
|
$
|
|
|
|
$
|
(0.4
|
)
|
Foreign exchange contracts (c) (d)
|
|
|
|
|
|
|
16.3
|
|
|
|
|
|
|
|
16.3
|
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
(3.6
|
)
|
Total
|
|
|
|
|
|
|
17.0
|
|
|
|
|
|
|
|
17.0
|
|
|
|
|
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
(4.0
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts (c) (d)
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
(6.6
|
)
|
|
|
|
|
|
|
(6.6
|
)
|
Commodity contracts (c) (e)
|
|
|
4.1
|
|
|
|
7.4
|
|
|
|
|
|
|
|
11.5
|
|
|
|
(3.4
|
)
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
(8.2
|
)
|
Grain contracts (c) (e)
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
(5.6
|
)
|
Total
|
|
|
4.1
|
|
|
|
10.3
|
|
|
|
|
|
|
|
14.4
|
|
|
|
(3.4
|
)
|
|
|
(17.0
|
)
|
|
|
|
|
|
|
(20.4
|
)
|
Other assets and liabilities reported at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable investments (a) (f)
|
|
|
9.9
|
|
|
|
265.5
|
|
|
|
|
|
|
|
275.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets (g)
|
|
|
|
|
|
|
43.7
|
|
|
|
|
|
|
|
43.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9.9
|
|
|
|
309.2
|
|
|
|
|
|
|
|
319.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, liabilities, and derivative positions recorded at fair value
|
|
$
|
14.0
|
|
|
$
|
336.5
|
|
|
$
|
|
|
|
$
|
350.5
|
|
|
$
|
(3.4
|
)
|
|
$
|
(21.0
|
)
|
|
$
|
|
|
|
$
|
(24.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or other liabilities, as appropriate, based on whether in a gain or loss position.
Certain marketable investments are recorded as cash and cash equivalents.
|
(b)
|
Based on LIBOR and swap rates.
|
(c)
|
These contracts are recorded as prepaid expenses and other current assets, other assets, other current liabilities, or other liabilities, as appropriate, based on whether in a gain or loss position.
|
(d)
|
Based on observable market transactions of spot currency rates and forward currency prices.
|
(e)
|
Based on prices of futures exchanges and recently reported transactions in the marketplace.
|
(f)
|
Based on prices of common stock and bond matrix pricing.
|
(g)
|
We recorded $47.4 million in non-cash impairment charges in fiscal 2017 to write down certain long-lived assets to their fair value. Fair value was based on recently reported transactions for similar assets in the
marketplace. These assets had a carrying value of $91.1 million and were associated with the restructuring actions described in Note 4.
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, 2016
|
|
|
May 29, 2016
|
|
|
|
Fair Values of Assets
|
|
|
Fair Values of Liabilities
|
|
In Millions
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (a) (b)
|
|
$
|
|
|
|
$
|
7.7
|
|
|
$
|
|
|
|
$
|
7.7
|
|
|
$
|
|
|
|
$
|
(3.0
|
)
|
|
$
|
|
|
|
$
|
(3.0
|
)
|
Foreign exchange contracts (c) (d)
|
|
|
|
|
|
|
12.2
|
|
|
|
|
|
|
|
12.2
|
|
|
|
|
|
|
|
(12.2
|
)
|
|
|
|
|
|
|
(12.2
|
)
|
Total
|
|
|
|
|
|
|
19.9
|
|
|
|
|
|
|
|
19.9
|
|
|
|
|
|
|
|
(15.2
|
)
|
|
|
|
|
|
|
(15.2
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts (c) (d)
|
|
|
|
|
|
|
13.2
|
|
|
|
|
|
|
|
13.2
|
|
|
|
|
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
(1.5
|
)
|
Commodity contracts (c) (e)
|
|
|
2.6
|
|
|
|
1.7
|
|
|
|
|
|
|
|
4.3
|
|
|
|
(0.6
|
)
|
|
|
(21.6
|
)
|
|
|
|
|
|
|
(22.2
|
)
|
Grain contracts (c) (e)
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
(5.5
|
)
|
|
|
|
|
|
|
(5.5
|
)
|
Total
|
|
|
2.6
|
|
|
|
16.7
|
|
|
|
|
|
|
|
19.3
|
|
|
|
(0.6
|
)
|
|
|
(28.6
|
)
|
|
|
|
|
|
|
(29.2
|
)
|
Other assets and liabilities reported at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable investments (a) (f)
|
|
|
8.4
|
|
|
|
165.8
|
|
|
|
|
|
|
|
174.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets (g)
|
|
|
|
|
|
|
26.0
|
|
|
|
|
|
|
|
26.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8.4
|
|
|
|
191.8
|
|
|
|
|
|
|
|
200.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, liabilities, and derivative positions
recorded at fair value
|
|
$
|
11.0
|
|
|
$
|
228.4
|
|
|
$
|
|
|
|
$
|
239.4
|
|
|
$
|
(0.6
|
)
|
|
$
|
(43.8
|
)
|
|
$
|
|
|
|
$
|
(44.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or other liabilities, as appropriate, based on whether in a gain or loss position.
Certain marketable investments are recorded as cash and cash equivalents.
|
(b)
|
Based on LIBOR and swap rates.
|
(c)
|
These contracts are recorded as prepaid expenses and other current assets or as other current liabilities, as appropriate, based on whether in a gain or loss position.
|
(d)
|
Based on observable market transactions of spot currency rates and forward currency prices.
|
(e)
|
Based on prices of futures exchanges and recently reported transactions in the marketplace.
|
(f)
|
Based on prices of common stock and bond matrix pricing.
|
(g)
|
We recorded $11.4 million in non-cash impairment charges in fiscal 2016 to write down certain long-lived assets to their fair value. Fair value was based on recently reported transactions for similar assets in the
marketplace. These assets had a carrying value of $28.2 million and were associated with the restructuring actions described in Note 4.
|
We
did not significantly change our valuation techniques from prior periods.
71
Information related to our cash flow hedges, fair value hedges, and other derivatives not designated as hedging
instruments for the fiscal years ended May 28, 2017 and May 29, 2016, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
Contracts
|
|
|
Foreign Exchange
Contracts
|
|
|
Equity
Contracts
|
|
|
Commodity
Contracts
|
|
|
Total
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Derivatives in Cash Flow Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) recognized in other comprehensive income (OCI) (a)
|
|
$
|
24.0
|
|
|
$
|
(2.6
|
)
|
|
$
|
46.3
|
|
|
$
|
21.2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
70.3
|
|
|
$
|
18.6
|
|
Amount of net gain (loss) reclassified from AOCI into earnings (a) (b)
|
|
|
(5.0
|
)
|
|
|
(10.6
|
)
|
|
|
33.8
|
|
|
|
22.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.8
|
|
|
|
11.5
|
|
Amount of net gain (loss) recognized in earnings (c)
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
0.6
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
(0.8
|
)
|
Derivatives in Fair Value Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of net gain recognized in earnings (d)
|
|
|
4.3
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3
|
|
|
|
0.1
|
|
Derivatives in Net Investment Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loss recognized in OCI (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of net gain (loss) recognized in earnings (d)
|
|
|
|
|
|
|
|
|
|
|
7.6
|
|
|
|
1.1
|
|
|
|
17.8
|
|
|
|
(4.5
|
)
|
|
|
(16.2
|
)
|
|
|
(56.1
|
)
|
|
|
9.2
|
|
|
|
(59.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
Gain (loss) reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.
|
(c)
|
Gain (loss) recognized in earnings is related to the ineffective portion of the hedging relationship, including SG&A expenses for foreign exchange contracts and interest, net for interest rate contracts. No amounts
were reported as a result of being excluded from the assessment of hedge effectiveness.
|
(d)
|
Gain (loss) recognized in earnings is reported in interest, net for interest rate contracts, in cost of sales for commodity contracts, and in SG&A expenses for equity contracts and foreign exchange contracts.
|
AMOUNTS RECORDED IN ACCUMULATED OTHER COMPREHENSIVE LOSS
As of May 28, 2017, the after-tax amounts of unrealized gains and losses in AOCI related to hedge derivatives follows:
|
|
|
|
|
In Millions
|
|
After-Tax Gain/(Loss)
|
|
Unrealized losses from interest rate cash flow hedges
|
|
|
$(12.9)
|
|
Unrealized gains from foreign currency cash flow
hedges
|
|
|
14.4
|
|
After-tax gain in AOCI related to hedge derivatives
|
|
|
$1.5
|
|
|
|
|
|
|
The net amount of pre-tax gains and losses in AOCI as of May 28, 2017 that we expect to be reclassified into net earnings
within the next 12 months is $11.7 million of gain.
CREDIT-RISK-RELATED CONTINGENT FEATURES
Certain of our derivative instruments contain provisions that require us to maintain an investment grade credit rating on our debt from each of the major
credit rating agencies. If our debt were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. The aggregate fair value of all
derivative instruments with credit-risk-related contingent features that were in a liability position on May 28, 2017, was $1.0 million. We have posted no collateral under these contracts. If the credit-risk-related contingent features
underlying these agreements had been triggered on May 28, 2017, we would have been required to post $1.0 million of collateral to counterparties.
72
CONCENTRATIONS OF CREDIT AND COUNTERPARTY CREDIT RISK
During fiscal 2017, customer concentration was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total
|
|
Consolidated
|
|
|
North
America
Retail
|
|
|
Convenience
Stores &
Foodservice
|
|
|
Europe &
Australia
|
|
|
Asia & Latin
America
|
|
Wal-mart (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
20
|
%
|
|
|
29
|
%
|
|
|
7
|
%
|
|
|
2
|
%
|
|
|
4
|
%
|
Accounts receivable
|
|
|
|
|
|
|
24
|
%
|
|
|
8
|
%
|
|
|
1
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
Five largest customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
52
|
%
|
|
|
48
|
%
|
|
|
31
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes Wal-Mart Stores, Inc. and its affiliates.
|
No customer other than Wal-Mart accounted for 10 percent
or more of our consolidated net sales.
We enter into interest rate, foreign exchange, and certain commodity and equity derivatives, primarily with a
diversified group of highly rated counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and, by policy, limit the amount of credit exposure to any one party. These transactions may expose us to
potential losses due to the risk of nonperformance by these counterparties; however, we have not incurred a material loss. We also enter into commodity futures transactions through various regulated exchanges.
The amount of loss due to the credit risk of the counterparties, should the counterparties fail to perform according to the terms of the contracts, is $5.8
million against which we do not hold collateral. Under the terms of our swap agreements, some of our transactions require collateral or other security to support financial instruments subject to threshold levels of exposure and counterparty credit
risk. Collateral assets are either cash or U.S. Treasury instruments and are held in a trust account that we may access if the counterparty defaults.
We
offer certain suppliers access to third party services that allows them to view our scheduled payments online. The third party services also allow suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the
third party. We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third parties, or any financial institutions concerning these services. All of our accounts payable remain as obligations to
our suppliers as stated in our supplier agreements. As of May 28, 2017, $639.0 million of our accounts payable is payable to suppliers who utilize these third party services.
NOTE 8. DEBT
Notes Payable
The components of notes payable and their respective weighted-average interest rates at the end of the periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 28, 2017
|
|
|
May 29, 2016
|
|
In Millions
|
|
Notes
Payable
|
|
|
Weighted-
Average
Interest Rate
|
|
|
Notes
Payable
|
|
|
Weighted-
Average
Interest Rate
|
|
U.S. commercial paper
|
|
$
|
954.7
|
|
|
|
1.1
|
%
|
|
$
|
|
|
|
|
|
%
|
Financial institutions
|
|
|
279.4
|
|
|
|
7.0
|
|
|
|
269.8
|
|
|
|
8.6
|
|
Total
|
|
$
|
1,234.1
|
|
|
|
2.4
|
%
|
|
$
|
269.8
|
|
|
|
8.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 uncommitted and asset-backed credit lines that support our foreign operations.
73
The following table details the fee-paid committed and uncommitted credit lines we had available as of
May 28, 2017:
|
|
|
|
|
|
|
|
|
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
|
|
|
|
0.1
|
|
Total committed and uncommitted credit facilities
|
|
$
|
3.4
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2016, we entered into a $2.7 billion fee-paid committed credit facility that was originally scheduled to expire in
May 2021. In fiscal 2017, we amended the credit facilitys expiration date by one year to May 2022.
The credit facilities contain covenants,
including a requirement to maintain a fixed charge coverage ratio of at least 2.5 times. We were in compliance with all credit facility covenants as of May 28, 2017.
Long-Term Debt
In March 2017, we issued
300.0 million principal amount of floating-rate notes due March 20, 2019. Interest on the notes is payable quarterly in arrears. The notes are not generally redeemable prior to maturity. These notes are senior unsecured obligations
that include a change of control repurchase provision. The net proceeds were used to 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 are payable quarterly in arrears. The notes are not generally redeemable prior to maturity. These notes are senior unsecured
obligations that include a change of control repurchase provision. The net proceeds were used to 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.
In April 2015, we issued
500.0 million principal amount of 1.0 percent fixed-rate notes due April 27, 2023 and 400.0 million principal amount of 1.5 percent fixed-rate notes due April 27, 2027. Interest on the notes is payable annually in
arrears. The notes may be redeemed in whole or in part at our option at any time at the applicable redemption price. These notes are senior unsecured obligations that include a change of control repurchase provision. The net proceeds were used for
general corporate purposes and to reduce our commercial paper borrowings.
In March 2015, we repaid $750.0 million of 5.2 percent fixed-rate notes.
74
A summary of our long-term debt is as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
5.65% notes due February 15, 2019
|
|
$
|
1,150.0
|
|
|
$
|
1,150.0
|
|
5.7% notes due February 15, 2017
|
|
|
|
|
|
|
1,000.0
|
|
3.15% notes due December 15, 2021
|
|
|
1,000.0
|
|
|
|
1,000.0
|
|
3.2% notes due February 10, 2027
|
|
|
750.0
|
|
|
|
|
|
Euro-denominated 2.1% notes due November 16, 2020
|
|
|
559.2
|
|
|
|
555.8
|
|
Euro-denominated 1.0% notes due April 27, 2023
|
|
|
559.2
|
|
|
|
555.8
|
|
Euro-denominated floating-rate notes due January 15, 2020
|
|
|
559.2
|
|
|
|
555.8
|
|
1.4% notes due October 20, 2017
|
|
|
500.0
|
|
|
|
500.0
|
|
5.4% notes due June 15, 2040
|
|
|
500.0
|
|
|
|
500.0
|
|
4.15% notes due February 15, 2043
|
|
|
500.0
|
|
|
|
500.0
|
|
3.65% notes due February 15, 2024
|
|
|
500.0
|
|
|
|
500.0
|
|
2.2% notes due October 21, 2019
|
|
|
500.0
|
|
|
|
500.0
|
|
Euro-denominated 1.5% notes due April 27, 2027
|
|
|
447.3
|
|
|
|
444.6
|
|
Euro-denominated floating-rate notes due March 20, 2019
|
|
|
335.5
|
|
|
|
|
|
Euro-denominated 2.2% notes due June 24, 2021
|
|
|
222.8
|
|
|
|
221.0
|
|
Medium-term notes, 0.02% to 6.59%, due fiscal 2018 or later
|
|
|
204.2
|
|
|
|
204.2
|
|
Other, including debt issuance costs and capital
leases
|
|
|
(39.8
|
)
|
|
|
(26.1
|
)
|
|
|
|
8,247.6
|
|
|
|
8,161.1
|
|
Less amount due within one year
|
|
|
(604.7
|
)
|
|
|
(1,103.4
|
)
|
Total long-term debt
|
|
$
|
7,642.9
|
|
|
$
|
7,057.7
|
|
|
|
|
|
|
|
|
|
|
Principal payments due on long-term debt in the next five years based on stated contractual maturities, our intent to redeem,
or put rights of certain note holders are $604.7 million in fiscal 2018, $1,585.9 million in fiscal 2019, $1,062.5 million in fiscal 2020, $559.4 million in fiscal 2021, and $1,001.1 million in fiscal 2022.
Certain of our long-term debt agreements contain restrictive covenants. As of May 28, 2017, we were in compliance with all of these covenants.
As of May 28, 2017, the $23.0 million pre-tax loss recorded in AOCI associated with our previously designated interest rate swaps will be reclassified to
net interest over the remaining lives of the hedged transactions. The amount expected to be reclassified from AOCI to net interest in fiscal 2018 is a $6.7 million pre-tax loss.
NOTE 9. REDEEMABLE AND NONCONTROLLING INTERESTS
Our
principal redeemable and noncontrolling interests relate to our Yoplait SAS, Yoplait Marques SNC, Liberté Marques Sàrl, and General Mills Cereals, LLC (GMC) subsidiaries. In addition, we have four foreign subsidiaries that have
noncontrolling interests totaling $8.5 million as of May 28, 2017.
We have a 51 percent controlling interest in Yoplait SAS and a 50 percent
interest in Yoplait Marques SNC and Liberté Marques Sàrl. Sodiaal holds the remaining interests in each of the entities. On the acquisition date, we recorded the $904.4 million fair value of Sodiaals 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 additional paid-in capital on our Consolidated Balance Sheets quarterly to the redeemable interests redemption value, which approximates its fair value. Yoplait SAS pays dividends annually if it meets
certain financial metrics set forth in its shareholders agreement. As of May 28, 2017, the redemption value of the euro-denominated redeemable interest was $910.9 million.
On the acquisition dates, we recorded the $281.4 million fair value of Sodiaals 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 to
Yoplait
and related trademarks. Liberté Marques Sàrl earns a royalty stream through licensing agreements with certain Yoplait group companies for the rights to
Liberté
and related
trademarks. These entities pay dividends annually based on their available cash as of their fiscal year end.
75
We paid dividends of $48.6 million in fiscal 2017, and $74.5 million in fiscal 2016, to Sodiaal under the terms
of the Yoplait SAS and Yoplait Marques SNC shareholder agreements.
A subsidiary of Yoplait SAS has entered into an exclusive milk supply agreement for
its European operations with Sodiaal at market-determined prices through July 1, 2021. Net purchases totaled $186.4 million for fiscal 2017 and $321.0 million for fiscal 2016.
The holder of the GMC Class A Interests receives quarterly preferred distributions from available net income based on the application of a floating
preferred return rate to the holders capital account balance established in the most recent mark-to-market valuation (currently $251.5 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.
For financial reporting purposes, the assets, liabilities, results of operations, and cash flows of our non-wholly owned subsidiaries are included in our
Consolidated Financial Statements. The third-party investors share of the net earnings of these subsidiaries is reflected in net earnings attributable to redeemable and noncontrolling interests in our Consolidated Statements of Earnings.
Our noncontrolling interests contain restrictive covenants. As of May 28, 2017, we were in compliance with all of these covenants.
NOTE 10. STOCKHOLDERS EQUITY
Cumulative
preference stock of 5.0 million shares, without par value, is authorized but unissued.
On May 6, 2014, our Board of Directors authorized the
repurchase of up to 100 million shares of our common stock. Purchases under the authorization can be made in the open market or in privately negotiated transactions, including the use of call options and other derivative instruments, Rule
10b5-1 trading plans, and accelerated repurchase programs. The authorization has no specified termination date.
Share repurchases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Shares of common stock
|
|
|
25.4
|
|
|
|
10.7
|
|
|
|
22.3
|
|
Aggregate purchase price
|
|
$
|
1,651.5
|
|
|
$
|
606.7
|
|
|
$
|
1,161.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
The following table provides details of total comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
|
|
|
|
General Mills
|
|
|
Noncontrolling
Interests
|
|
|
Redeemable
Interest
|
|
In Millions
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
Net earnings, including earnings attributable to
redeemable and noncontrolling interests
|
|
|
|
|
|
|
|
|
|
$
|
1,657.5
|
|
|
|
$ 11.3
|
|
|
|
$ 32.3
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
$ 19.5
|
|
|
|
$
|
|
|
|
19.5
|
|
|
|
2.5
|
|
|
|
(15.7
|
)
|
Net actuarial income
|
|
|
307.3
|
|
|
|
(109.4
|
)
|
|
|
197.9
|
|
|
|
|
|
|
|
|
|
Other fair value changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
1.3
|
|
|
|
(0.5
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
Hedge derivatives
|
|
|
65.9
|
|
|
|
(16.1
|
)
|
|
|
49.8
|
|
|
|
|
|
|
|
3.5
|
|
Reclassification to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives (a)
|
|
|
(25.2
|
)
|
|
|
2.4
|
|
|
|
(22.8
|
)
|
|
|
|
|
|
|
(2.9
|
)
|
Amortization of losses and prior service costs
(b)
|
|
|
197.2
|
|
|
|
(74.7
|
)
|
|
|
122.5
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
566.0
|
|
|
|
(198.3
|
)
|
|
|
367.7
|
|
|
|
2.5
|
|
|
|
(15.1
|
)
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
$ 2,025.2
|
|
|
|
$13.8
|
|
|
|
$17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Gain reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.
|
(b)
|
Loss reclassified from AOCI into earnings is reported in SG&A expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
|
General Mills
|
|
|
Noncontrolling
Interests
|
|
|
Redeemable
Interest
|
|
In Millions
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
Net earnings, including earnings attributable to
redeemable and noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
$1,697.4
|
|
|
|
$ 8.4
|
|
|
|
$31.0
|
|
Other comprehensive Income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
$
|
(107.6
|
)
|
|
$
|
|
|
|
|
(107.6
|
)
|
|
|
2.8
|
|
|
|
(3.9
|
)
|
Net actuarial loss
|
|
|
(514.2
|
)
|
|
|
188.3
|
|
|
|
(325.9
|
)
|
|
|
|
|
|
|
|
|
Other fair value changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
0.2
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Hedge derivatives
|
|
|
16.5
|
|
|
|
(2.2
|
)
|
|
|
14.3
|
|
|
|
|
|
|
|
1.7
|
|
Reclassification to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives (a)
|
|
|
(13.5
|
)
|
|
|
2.5
|
|
|
|
(11.0
|
)
|
|
|
|
|
|
|
1.5
|
|
Amortization of losses and prior service costs
(b)
|
|
|
206.8
|
|
|
|
(78.2
|
)
|
|
|
128.6
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(411.8
|
)
|
|
|
110.3
|
|
|
|
(301.5
|
)
|
|
|
2.8
|
|
|
|
(0.7
|
)
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
$1,395.9
|
|
|
|
$11.2
|
|
|
|
$30.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Gain reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.
|
(b)
|
Loss reclassified from AOCI into earnings is reported in SG&A expenses.
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015
|
|
|
|
General Mills
|
|
|
Noncontrolling
Interests
|
|
|
Redeemable
Interest
|
|
In Millions
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
Net earnings, including earnings attributable to
redeemable and noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
$1,221.3
|
|
|
|
$ 8.2
|
|
|
|
$29.9
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
$(727.9
|
)
|
|
|
$
|
|
|
|
(727.9
|
)
|
|
|
(78.2
|
)
|
|
|
(151.8
|
)
|
Net actuarial loss
|
|
|
(561.1
|
)
|
|
|
202.7
|
|
|
|
(358.4
|
)
|
|
|
|
|
|
|
|
|
Other fair value changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
1.3
|
|
|
|
(0.5
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
Hedge derivatives
|
|
|
13.6
|
|
|
|
(4.8
|
)
|
|
|
8.8
|
|
|
|
|
|
|
|
(4.7
|
)
|
Reclassification to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives (a)
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
1.2
|
|
|
|
|
|
|
|
3.7
|
|
Amortization of losses and prior service costs
(b)
|
|
|
170.2
|
|
|
|
(65.1
|
)
|
|
|
105.1
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(1,103.2
|
)
|
|
|
132.8
|
|
|
|
(970.4
|
)
|
|
|
(78.2
|
)
|
|
|
(152.8
|
)
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
$250.9
|
|
|
|
$(70.0
|
)
|
|
|
$(122.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.
|
(b)
|
Loss reclassified from AOCI into earnings is reported in SG&A expenses.
|
In fiscal 2017, 2016, and 2015,
except for reclassifications to earnings, changes in other comprehensive income (loss) were primarily non-cash items.
Accumulated other comprehensive
loss balances, net of tax effects, were as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
Foreign currency translation adjustments
|
|
$
|
(624.7
|
)
|
|
$
|
(644.2
|
)
|
Unrealized gain (loss) from:
|
|
|
|
|
|
|
|
|
Securities
|
|
|
4.6
|
|
|
|
3.8
|
|
Hedge derivatives
|
|
|
1.5
|
|
|
|
(25.5
|
)
|
Pension, other postretirement, and postemployment benefits:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
(1,645.4
|
)
|
|
|
(1,958.2
|
)
|
Prior service credits
|
|
|
19.5
|
|
|
|
11.9
|
|
Accumulated other comprehensive loss
|
|
$
|
(2,244.5
|
)
|
|
$
|
(2,612.2
|
)
|
|
|
|
|
|
|
|
|
|
NOTE 11. STOCK PLANS
We
use broad-based stock plans to help ensure that managements interests are aligned with those of our shareholders. As of May 28, 2017, a total of 20.3 million shares were available for grant in the form of stock options, restricted
stock, restricted stock units, and shares of unrestricted stock under the 2011 Stock Compensation Plan (2011 Plan) and the 2016 Compensation Plan for Non-Employee Directors. The 2011 Plan also provides for the issuance of cash-settled share-based
units, stock appreciation rights, and performance-based stock awards. Stock-based awards now outstanding include some granted under the 2005, 2006, 2007 and 2009 stock plans and the 2011 compensation plan for non-employee directors, under which no
further awards may be granted. The stock plans provide for potential accelerated vesting of awards upon retirement, termination, or death of eligible employees and directors.
78
Stock Options
The estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Estimated fair values of stock options granted
|
|
|
$ 8.80
|
|
|
|
$ 7.24
|
|
|
|
$ 7.22
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
1.7%
|
|
|
|
2.4%
|
|
|
|
2.6%
|
|
Expected term
|
|
|
8.5 years
|
|
|
|
8.5 years
|
|
|
|
8.5 years
|
|
Expected volatility
|
|
|
17.8%
|
|
|
|
17.6%
|
|
|
|
17.5%
|
|
Dividend yield
|
|
|
2.9%
|
|
|
|
3.2%
|
|
|
|
3.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimate the fair value of each option on the grant date using a Black-Scholes option-pricing model, which requires us to
make predictive assumptions regarding future stock price volatility, employee exercise behavior, dividend yield, and the forfeiture rate. We estimate our future stock price volatility using the historical volatility over the expected term of the
option, excluding time periods of volatility we believe a marketplace participant would exclude in estimating our stock price volatility. We also have considered, but did not use, implied volatility in our estimate, because trading activity in
options on our stock, especially those with tenors of greater than 6 months, is insufficient to provide a reliable measure of expected volatility.
Our
expected term represents the period of time that options granted are expected to be outstanding based on historical data to estimate option exercises and employee terminations within the valuation model. Separate groups of employees have similar
historical exercise behavior and therefore were aggregated into a single pool for valuation purposes. The weighted-average expected term for all employee groups is presented in the table above. The risk-free interest rate for periods during the
expected term of the options is based on the U.S. Treasury zero-coupon yield curve in effect at the time of grant.
Any corporate income tax benefit
realized upon exercise or vesting of an award in excess of that previously recognized in earnings (referred to as a windfall tax benefit) is presented in our Consolidated Statements of Cash Flows as a financing cash flow.
Realized windfall tax benefits are credited to additional paid-in capital within our Consolidated Balance Sheets. Realized shortfall tax benefits (amounts
which are less than that previously recognized in earnings) are first offset against the cumulative balance of windfall tax benefits, if any, and then charged directly to income tax expense, potentially resulting in volatility in our consolidated
effective income tax rate. We calculated a cumulative memo balance of windfall tax benefits for the purpose of accounting for future shortfall tax benefits.
Options may be priced at 100 percent or more of the fair market value on the date of grant, and generally vest four years after the date of grant. Options
generally expire within 10 years and one month after the date of grant.
79
Information on stock option activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Exercisable
(Thousands)
|
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
|
Options
Outstanding
(Thousands)
|
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
Balance as of May 25, 2014
|
|
|
29,452.8
|
|
|
$
|
28.37
|
|
|
|
44,169.0
|
|
|
$
|
32.10
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
2,253.1
|
|
|
|
53.70
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(7,297.2
|
)
|
|
|
26.68
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
(47.7
|
)
|
|
|
43.73
|
|
Balance as of May 31, 2015
|
|
|
26,991.5
|
|
|
$
|
30.44
|
|
|
|
39,077.2
|
|
|
$
|
34.35
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
1,930.2
|
|
|
|
55.72
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(8,471.0
|
)
|
|
|
28.49
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
(134.8
|
)
|
|
|
48.16
|
|
Balance as of May 29, 2016
|
|
|
22,385.1
|
|
|
$
|
32.38
|
|
|
|
32,401.6
|
|
|
$
|
37.09
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
2,446.0
|
|
|
|
66.52
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(4,904.9
|
)
|
|
|
30.76
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
(108.3
|
)
|
|
|
57.52
|
|
Balance as of May 28, 2017
|
|
|
20,899.2
|
|
|
$
|
33.83
|
|
|
|
29,834.4
|
|
|
$
|
40.47
|
|
Stock-based compensation expense related to stock option awards was $18.0 million in fiscal 2017, $14.8 million in fiscal
2016, and $18.1 million in fiscal 2015. Compensation expense related to stock-based payments recognized in our Consolidated Statements of Earnings includes amounts recognized in restructuring, impairment, and other exit costs for fiscal 2017, 2016
and 2015.
Net cash proceeds from the exercise of stock options less shares used for minimum withholding taxes and the intrinsic value of options
exercised were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net cash proceeds
|
|
$
|
112.6
|
|
|
$
|
171.9
|
|
|
$
|
163.7
|
|
Intrinsic value of options exercised
|
|
$
|
176.5
|
|
|
$
|
268.4
|
|
|
$
|
201.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock, Restricted Stock Units, and Performance Share Units
Stock and units settled in stock subject to a restricted period and a purchase price, if any (as determined by the Compensation Committee of the Board of
Directors), may be granted to key employees under the 2011 Plan. Restricted stock and restricted stock units generally vest and become unrestricted four years after the date of grant. Performance share units are earned based on our future
achievement of three-year goals for average organic net sales growth and cumulative free cash flow. Performance share units are settled in common stock and are generally subject to a three year performance and vesting period. The sale or transfer of
these awards is restricted during the vesting period. Participants holding restricted stock, but not restricted stock units or performance share units, are entitled to vote on matters submitted to holders of common stock for a vote. These awards
accumulate dividends from the date of grant, but participants only receive payment if the awards vest.
80
Information on restricted stock unit and performance share units activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Classified
|
|
|
Liability Classified
|
|
|
|
Share-Settled
Units
(Thousands)
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
|
Share-Settled
Units
(Thousands)
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Non-vested as of May 29, 2016
|
|
|
5,100.4
|
|
|
$
|
48.60
|
|
|
|
211.4
|
|
|
$
|
48.37
|
|
Granted
|
|
|
1,418.7
|
|
|
|
67.02
|
|
|
|
43.6
|
|
|
|
66.75
|
|
Vested
|
|
|
(1,710.3
|
)
|
|
|
42.50
|
|
|
|
(119.8
|
)
|
|
|
41.21
|
|
Forfeited, expired, or reclassified
|
|
|
(317.6
|
)
|
|
|
57.96
|
|
|
|
(11.9
|
)
|
|
|
57.76
|
|
Non-vested as of May 28, 2017
|
|
|
4,491.2
|
|
|
$
|
56.08
|
|
|
|
123.3
|
|
|
$
|
56.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Number of units granted (thousands)
|
|
|
1,462.3
|
|
|
|
1,351.5
|
|
|
|
1,708.2
|
|
Weighted average price per unit
|
|
$
|
67.01
|
|
|
$
|
56.00
|
|
|
$
|
53.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total grant-date fair value of restricted stock unit awards that vested was $78.1 million in fiscal 2017 and $101.8
million in fiscal 2016.
As of May 28, 2017, unrecognized compensation expense related to non-vested stock options, restricted stock units, and
performance share units was $98.1 million. This expense will be recognized over 18 months, on average.
Stock-based compensation expense related to
restricted stock units and performance share units was $77.9 million for fiscal 2017, $76.8 million for fiscal 2016, and $96.6 million for fiscal 2015. Compensation expense related to stock-based payments recognized in our Consolidated Statements of
Earnings includes amounts recognized in restructuring, impairment, and other exit costs for fiscal 2017, 2016 and 2015.
NOTE 12. EARNINGS PER SHARE
Basic and diluted EPS were calculated using the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions, Except per Share Data
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net earnings attributable to General Mills
|
|
$
|
1,657.5
|
|
|
$
|
1,697.4
|
|
|
$
|
1,221.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common sharesbasic EPS
|
|
|
587.1
|
|
|
|
598.9
|
|
|
|
603.3
|
|
Incremental share effect from: (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
8.1
|
|
|
|
9.8
|
|
|
|
11.3
|
|
Restricted stock units, performance share units, and
other
|
|
|
2.8
|
|
|
|
3.2
|
|
|
|
4.2
|
|
Average number of common sharesdiluted EPS
|
|
|
598.0
|
|
|
|
611.9
|
|
|
|
618.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per sharebasic
|
|
$
|
2.82
|
|
|
$
|
2.83
|
|
|
$
|
2.02
|
|
Earnings per sharediluted
|
|
$
|
2.77
|
|
|
$
|
2.77
|
|
|
$
|
1.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Incremental shares from stock options, restricted stock units, and performance share units are computed by the treasury stock method. Stock options, restricted stock units, and performance share units excluded from our
computation of diluted EPS because they were not dilutive were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Anti-dilutive stock options, restricted stock units, and performance share units
|
|
|
2.3
|
|
|
|
1.1
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
NOTE 13. RETIREMENT BENEFITS AND POSTEMPLOYMENT BENEFITS
Defined Benefit Pension Plans
We have defined benefit
pension plans covering many employees in the United States, Canada, France, and the United Kingdom. Benefits for salaried employees are based on length of service and final average compensation. Benefits for hourly employees include various monthly
amounts for each year of credited service. Our funding policy is consistent with the requirements of applicable laws. We made no voluntary contributions to our principal U.S. plans in fiscal 2017, 2016, and 2015. We do not expect to be required to
make any contributions in fiscal 2018. Our principal domestic retirement plan covering salaried employees has a provision that any excess pension assets would be allocated to active participants if the plan is terminated within five years of a
change in control. All salaried employees hired on or after June 1, 2013 are eligible for a retirement program that does not include a defined benefit pension plan.
In May 2017, we announced changes to the United States pension plans. The Company will freeze the pay and service amounts used to calculate pension benefits
for active employees who participate in the United States pension plans as of December 31, 2027. Beginning January 1, 2028, active employees in the United States will not accrue additional benefits for future service and eligible
compensation received under these plans. These changes resulted in a $130.9 million decline in the projected benefit obligation as of May 28, 2017, due to the decrease in expected future pensionable compensation.
Other Postretirement Benefit Plans
We also sponsor plans
that provide health care benefits to many of our retirees in the United States, Canada, and Brazil. The United States salaried health care benefit plan is contributory, with retiree contributions based on years of service. We make decisions to fund
related trusts for certain employees and retirees on an annual basis. We made voluntary contributions to these plans of $20.0 million in in fiscal 2017 and $24.0 million in fiscal 2016.
Health Care Cost Trend Rates
Assumed health care cost
trends are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2017
|
|
|
2016
|
|
Health care cost trend rate for next year
|
|
|
7.0% and 7.3%
|
|
|
|
7.3% and 7.5%
|
|
Rate to which the cost trend rate is assumed to decline (ultimate rate)
|
|
|
5.0%
|
|
|
|
5.0%
|
|
Year that the rate reaches the ultimate trend rate
|
|
|
2024
|
|
|
|
2024
|
|
|
|
|
|
|
|
|
|
|
We review our health care cost trend rates annually. Our review is based on data we collect about our health care claims
experience and information provided by our actuaries. This information includes recent plan experience, plan design, overall industry experience and projections, and assumptions used by other similar organizations. Our initial health care cost trend
rate is adjusted as necessary to remain consistent with this review, recent experiences, and short-term expectations. Our initial health care cost trend rate assumption is 7.3 percent for retirees age 65 and over and 7.0 percent for retirees under
age 65 at the end of fiscal 2017. Rates are graded down annually until the ultimate trend rate of 5.0 percent is reached in 2024 for all retirees. The trend rates are applicable for calculations only if the retirees benefits increase as a
result of health care inflation. The ultimate trend rate is adjusted annually, as necessary, to approximate the current economic view on the rate of long-term inflation plus an appropriate health care cost premium. Assumed trend rates for health
care costs have an important effect on the amounts reported for the other postretirement benefit plans.
A one percentage point change in the health care
cost trend rate would have the following effects:
|
|
|
|
|
|
|
|
|
In Millions
|
|
One
Percentage
Point
Increase
|
|
|
One
Percentage
Point
Decrease
|
|
Effect on the aggregate of the service and interest cost components in fiscal 2018
|
|
|
$ 2.2
|
|
|
|
$ (1.9)
|
|
Effect on the other postretirement accumulated benefit obligation as of May 28, 2017
|
|
|
59.5
|
|
|
|
(53.8)
|
|
|
|
|
|
|
|
|
|
|
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010
(collectively, the Act) was signed into law in March 2010. The Act codifies health care reforms with staggered effective dates from 2010 to 2018. Estimates of the future impacts of several of the Acts provisions are incorporated into our
postretirement benefit liability.
82
Postemployment Benefit Plans
Under certain circumstances, we also provide accruable benefits, primarily severance, to former or inactive employees in the United States, Canada, and
Mexico. We recognize an obligation for any of these benefits that vest or accumulate with service. Postemployment benefits that do not vest or accumulate with service (such as severance based solely on annual pay rather than years of service) are
charged to expense when incurred. Our postemployment benefit plans are unfunded.
In the first quarter of fiscal 2017, we adopted new accounting
requirements which permit reporting entities with a fiscal year-end that does not coincide with a month-end to apply a practical expedient to measure defined benefit plan assets and obligations using the month-end that is closest to the
entitys fiscal year-end and apply such practical expedient consistently to all plans. We measured the plan assets and obligations for our defined benefit pension, other postretirement benefit, and postemployment benefit plans as of
May 31, 2017.
Summarized financial information about defined benefit pension, other postretirement benefit, and postemployment benefit plans is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plans
|
|
|
Other
Postretirement
Benefit Plans
|
|
|
Postemployment
Benefit Plans
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at beginning of year
|
|
$
|
5,539.9
|
|
|
$
|
5,758.5
|
|
|
$
|
602.4
|
|
|
$
|
582.8
|
|
|
|
|
|
|
|
|
|
Actual return on assets
|
|
|
645.6
|
|
|
|
36.3
|
|
|
|
75.2
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
25.4
|
|
|
|
23.7
|
|
|
|
20.1
|
|
|
|
24.1
|
|
|
|
|
|
|
|
|
|
Plan participant contributions
|
|
|
8.8
|
|
|
|
5.7
|
|
|
|
15.2
|
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
Benefits payments
|
|
|
(282.2
|
)
|
|
|
(277.5
|
)
|
|
|
(18.1
|
)
|
|
|
(18.5
|
)
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
|
(12.3
|
)
|
|
|
(6.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at end of year
|
|
$
|
5,925.2
|
|
|
$
|
5,539.9
|
|
|
$
|
694.8
|
|
|
$
|
602.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
6,448.5
|
|
|
$
|
6,252.1
|
|
|
$
|
1,028.9
|
|
|
$
|
1,079.6
|
|
|
$
|
164.1
|
|
|
$
|
146.6
|
|
Service cost
|
|
|
119.7
|
|
|
|
134.6
|
|
|
|
12.5
|
|
|
|
19.0
|
|
|
|
8.8
|
|
|
|
7.6
|
|
Interest cost
|
|
|
216.5
|
|
|
|
267.8
|
|
|
|
32.2
|
|
|
|
44.1
|
|
|
|
2.6
|
|
|
|
3.9
|
|
Plan amendment
|
|
|
(130.9
|
)
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
Curtailment/other
|
|
|
1.9
|
|
|
|
7.1
|
|
|
|
(0.3
|
)
|
|
|
0.5
|
|
|
|
1.3
|
|
|
|
10.7
|
|
Plan participant contributions
|
|
|
8.8
|
|
|
|
5.7
|
|
|
|
15.2
|
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
Medicare Part D reimbursements
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
|
|
88.5
|
|
|
|
65.2
|
|
|
|
(77.6
|
)
|
|
|
(64.5
|
)
|
|
|
(7.4
|
)
|
|
|
11.2
|
|
Benefits payments
|
|
|
(282.6
|
)
|
|
|
(278.0
|
)
|
|
|
(63.3
|
)
|
|
|
(66.4
|
)
|
|
|
(34.7
|
)
|
|
|
(16.9
|
)
|
Foreign currency
|
|
|
(11.8
|
)
|
|
|
(6.9
|
)
|
|
|
0.4
|
|
|
|
(1.0
|
)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
Projected benefit obligation at end of year
|
|
$
|
6,458.6
|
|
|
$
|
6,448.5
|
|
|
$
|
951.4
|
|
|
$
|
1,028.9
|
|
|
$
|
134.5
|
|
|
$
|
164.1
|
|
Plan assets less than benefit obligation as of fiscal year end
|
|
$
|
(533.4
|
)
|
|
$
|
(908.6
|
)
|
|
$
|
(256.6
|
)
|
|
$
|
(426.5
|
)
|
|
$
|
(134.5
|
)
|
|
$
|
(164.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for all defined benefit pension plans was $6,104.5 million as of May 28, 2017, and
$5,950.7 million as of May 29, 2016.
83
Amounts recognized in AOCI as of May 28, 2017 and May 29, 2016, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plans
|
|
|
Other
Postretirement
Benefit Plans
|
|
|
Postemployment
Benefit Plans
|
|
|
Total
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net actuarial loss
|
|
$
|
(1,621.4
|
)
|
|
$
|
(1,886.0
|
)
|
|
$
|
(14.5
|
)
|
|
$
|
(57.6
|
)
|
|
$
|
(9.5
|
)
|
|
$
|
(14.6
|
)
|
|
$
|
(1,645.4
|
)
|
|
$
|
(1,958.2
|
)
|
Prior service (costs) credits
|
|
|
(3.9
|
)
|
|
|
(6.8
|
)
|
|
|
22.8
|
|
|
|
19.9
|
|
|
|
0.6
|
|
|
|
(1.2
|
)
|
|
|
19.5
|
|
|
|
11.9
|
|
Amounts recorded in accumulated other comprehensive loss
|
|
$
|
(1,625.3
|
)
|
|
$
|
(1,892.8
|
)
|
|
$
|
8.3
|
|
|
$
|
(37.7
|
)
|
|
$
|
(8.9
|
)
|
|
$
|
(15.8
|
)
|
|
$
|
(1,625.9
|
)
|
|
$
|
(1,946.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plans with accumulated benefit obligations in excess of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
Benefit
Pension Plans
|
|
|
Other
Postretirement
Benefit Plans
|
|
|
Postemployment
Benefit Plans
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Projected benefit obligation
|
|
$
|
610.1
|
|
|
$
|
5,490.3
|
|
|
$
|
5.5
|
|
|
$
|
|
|
|
$
|
4.4
|
|
|
$
|
4.8
|
|
Accumulated benefit obligation
|
|
|
542.3
|
|
|
|
4,998.3
|
|
|
|
947.9
|
|
|
|
1,024.7
|
|
|
|
130.1
|
|
|
|
159.3
|
|
Plan assets at fair value
|
|
|
51.9
|
|
|
|
4,498.5
|
|
|
|
694.8
|
|
|
|
602.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plans
|
|
|
Other Postretirement
Benefit Plans
|
|
|
Postemployment
Benefit Plans
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Service cost
|
|
$
|
119.7
|
|
|
$
|
134.6
|
|
|
$
|
137.0
|
|
|
$
|
12.5
|
|
|
$
|
19.0
|
|
|
$
|
22.4
|
|
|
$
|
8.8
|
|
|
$
|
7.6
|
|
|
$
|
7.5
|
|
Interest cost
|
|
|
216.5
|
|
|
|
267.8
|
|
|
|
249.2
|
|
|
|
32.2
|
|
|
|
44.1
|
|
|
|
46.9
|
|
|
|
2.6
|
|
|
|
3.9
|
|
|
|
4.3
|
|
Expected return on plan assets
|
|
|
(486.7
|
)
|
|
|
(496.9
|
)
|
|
|
(476.4
|
)
|
|
|
(48.5
|
)
|
|
|
(46.2
|
)
|
|
|
(40.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of losses
|
|
|
190.2
|
|
|
|
189.8
|
|
|
|
141.7
|
|
|
|
2.5
|
|
|
|
6.6
|
|
|
|
4.9
|
|
|
|
1.7
|
|
|
|
0.7
|
|
|
|
0.7
|
|
Amortization of prior service costs (credits)
|
|
|
2.5
|
|
|
|
4.7
|
|
|
|
7.4
|
|
|
|
(5.4
|
)
|
|
|
(5.4
|
)
|
|
|
(1.6
|
)
|
|
|
0.6
|
|
|
|
2.5
|
|
|
|
2.4
|
|
Other adjustments
|
|
|
3.1
|
|
|
|
5.0
|
|
|
|
15.1
|
|
|
|
1.3
|
|
|
|
2.3
|
|
|
|
3.3
|
|
|
|
1.3
|
|
|
|
10.7
|
|
|
|
9.5
|
|
Settlement or curtailment losses
|
|
|
3.8
|
|
|
|
13.1
|
|
|
|
18.0
|
|
|
|
(0.9
|
)
|
|
|
(1.0
|
)
|
|
|
1.3
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
Net expense
|
|
$
|
49.1
|
|
|
$
|
118.1
|
|
|
$
|
92.0
|
|
|
$
|
(6.3
|
)
|
|
$
|
19.4
|
|
|
$
|
37.0
|
|
|
$
|
13.6
|
|
|
$
|
25.4
|
|
|
$
|
24.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect to recognize the following amounts in net periodic benefit expense in fiscal 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
Defined Benefit
Pension Plans
|
|
|
Other
Postretirement
Benefit
Plans
|
|
|
Postemployment
Benefit Plans
|
|
Amortization of losses
|
|
$
|
176.9
|
|
|
$
|
0.8
|
|
|
$
|
0.6
|
|
Amortization of prior service costs (credits)
|
|
|
1.9
|
|
|
|
(5.4
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
Assumptions
Weighted-average assumptions used to determine fiscal year-end benefit obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plans
|
|
|
Other
Postretirement
Benefit Plans
|
|
|
Postemployment
Benefit Plans
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Discount rate
|
|
|
4.08
|
%
|
|
|
4.19
|
%
|
|
|
3.92
|
%
|
|
|
3.97
|
%
|
|
|
2.87
|
%
|
|
|
2.94
|
%
|
Rate of salary increases
|
|
|
4.25
|
|
|
|
4.28
|
|
|
|
|
|
|
|
|
|
|
|
4.46
|
|
|
|
4.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine fiscal year net periodic benefit expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plans
|
|
|
Other Postretirement
Benefit Plans
|
|
|
Postemployment
Benefit Plans
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
2017 (a)
|
|
|
2016
|
|
|
2015
|
|
|
2017 (a)
|
|
|
2016
|
|
|
2015
|
|
|
2017 (a)
|
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
|
4.19
|
%
|
|
|
4.38
|
%
|
|
|
4.54
|
%
|
|
|
3.97
|
%
|
|
|
4.20
|
%
|
|
|
4.51
|
%
|
|
|
2.94
|
%
|
|
|
3.55
|
%
|
|
|
3.82
|
%
|
Service cost effective rate
|
|
|
4.57
|
|
|
|
|
|
|
|
|
|
|
|
4.42
|
|
|
|
|
|
|
|
|
|
|
|
3.55
|
|
|
|
|
|
|
|
|
|
Interest cost effective rate
|
|
|
3.44
|
|
|
|
|
|
|
|
|
|
|
|
3.17
|
|
|
|
|
|
|
|
|
|
|
|
2.67
|
|
|
|
|
|
|
|
|
|
Rate of salary increases
|
|
|
4.28
|
|
|
|
4.31
|
|
|
|
4.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.35
|
|
|
|
4.36
|
|
|
|
4.44
|
|
Expected long-term rate of return on plan assets
|
|
|
8.17
|
|
|
|
8.53
|
|
|
|
8.53
|
|
|
|
7.85
|
|
|
|
8.14
|
|
|
|
8.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Beginning in fiscal 2017, we adopted the full yield curve method.
|
Discount Rates
Beginning in 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 $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 was
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 changes that decreased
investment risk in the portfolio.
Beginning in fiscal 2017, our discount rate assumptions are determined annually as of May 31 for our defined
benefit pension, other postretirement benefit, and postemployment benefit plan obligations. We also use discount rates as of May 31 to determine defined benefit pension, other postretirement benefit, and postemployment benefit plan income and
expense for the following fiscal year. We work with our outside actuaries to determine the timing and amount of expected future cash outflows to plan participants and, using the Aa Above Median corporate bond yield, to develop a forward interest
rate curve, including a margin to that index based on our credit risk. This forward interest rate curve is applied to our expected future cash outflows to determine our discount rate assumptions.
85
Fair Value of Plan Assets
The fair values of our pension and postretirement benefit plans assets and their respective levels in the fair value hierarchy at May 28, 2017, and
May 29, 2016, by asset category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 28, 2017
|
|
|
May 29, 2016
|
|
In Millions
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
Assets
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
Assets
|
|
Fair value measurement of pension plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (a)
|
|
$
|
1,773.0
|
|
|
$
|
781.2
|
|
|
$
|
|
|
|
$
|
2,554.2
|
|
|
$
|
1,543.7
|
|
|
$
|
741.9
|
|
|
$
|
|
|
|
$
|
2,285.6
|
|
Fixed income (b)
|
|
|
951.9
|
|
|
|
742.2
|
|
|
|
|
|
|
|
1,694.1
|
|
|
|
903.8
|
|
|
|
745.8
|
|
|
|
|
|
|
|
1,649.6
|
|
Real asset investments (c)
|
|
|
253.1
|
|
|
|
95.8
|
|
|
|
|
|
|
|
348.9
|
|
|
|
193.6
|
|
|
|
95.2
|
|
|
|
|
|
|
|
288.8
|
|
Other investments (d)
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.4
|
|
Cash and accruals
|
|
|
174.2
|
|
|
|
|
|
|
|
|
|
|
|
174.2
|
|
|
|
195.1
|
|
|
|
|
|
|
|
|
|
|
|
195.1
|
|
Fair value measurement of pension plan assets in the fair value hierarchy
|
|
$
|
3,152.2
|
|
|
$
|
1,619.2
|
|
|
$
|
0.3
|
|
|
$
|
4,771.7
|
|
|
$
|
2,836.2
|
|
|
$
|
1,582.9
|
|
|
$
|
0.4
|
|
|
$
|
4,419.5
|
|
Investments measured at net asset value (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,153.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,120.4
|
|
Total pension plan investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,925.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,539.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement of postretirement benefit plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (a)
|
|
$
|
122.3
|
|
|
$
|
67.5
|
|
|
$
|
|
|
|
$
|
189.8
|
|
|
$
|
128.9
|
|
|
$
|
87.6
|
|
|
$
|
|
|
|
$
|
216.5
|
|
Fixed income (b)
|
|
|
34.1
|
|
|
|
160.0
|
|
|
|
|
|
|
|
194.1
|
|
|
|
18.0
|
|
|
|
83.4
|
|
|
|
|
|
|
|
101.4
|
|
Real asset investments (c)
|
|
|
18.0
|
|
|
|
14.5
|
|
|
|
|
|
|
|
32.5
|
|
|
|
|
|
|
|
14.3
|
|
|
|
|
|
|
|
14.3
|
|
Other investments (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and accruals
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
11.3
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
8.9
|
|
Fair value measurement of postretirement benefit plan assets in the fair value hierarchy
|
|
$
|
185.7
|
|
|
$
|
242.0
|
|
|
$
|
|
|
|
$
|
427.7
|
|
|
$
|
155.8
|
|
|
$
|
185.3
|
|
|
$
|
|
|
|
$
|
341.1
|
|
Investments measured at net asset value (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261.3
|
|
Total postretirement benefit plan investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
694.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
602.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Primarily publicly traded common stock for purposes of total return and to maintain equity exposure consistent with policy allocations. Investments include: United States and international equity securities, mutual
funds, and equity futures valued at closing prices from national exchanges; and commingled funds valued at unit values provided by the investment managers, which are based on the fair value of the underlying investments.
|
(b)
|
Primarily government and corporate debt securities and futures for purposes of total return, managing fixed income exposure to policy allocations, and managing duration targets. Investments include: fixed income
securities and bond futures generally valued at closing prices from national exchanges, fixed income pricing models, and independent financial analysts; and fixed income commingled funds valued at unit values provided by the investment managers,
which are based on the fair value of the underlying investments.
|
(c)
|
Publicly traded common stock and limited partnerships in the energy and real estate sectors for purposes of total return. Investments include: energy and real estate securities generally valued at closing prices from
national exchanges; and commingled funds valued at unit values provided by the investment managers, which are based on the fair value of the underlying investments.
|
(d)
|
Global balanced fund of equity, fixed income, and real estate securities for purposes of meeting Canadian pension plan asset allocation policies, and insurance and annuity contracts to provide a stable stream of income
for retirees and to fund postretirement medical benefits. Fair values are derived from unit values provided by the investment managers, which are generally based on the fair value of the underlying investments and contract fair values from the
providers.
|
(e)
|
Primarily private investments and common collective trusts that are measured at fair value using the net asset value per share (or its equivalent) practical expedient and have not been classified in the fair value
hierarchy.
|
There were no material changes in our level 3 investments in fiscal 2017 and fiscal 2016.
86
Expected Rate of Return on Plan Assets
Our expected rate of return on plan assets is determined by our asset allocation, our historical long-term investment performance, our estimate of future
long-term returns by asset class (using input from our actuaries, investment services, and investment managers), and long-term inflation assumptions. We review this assumption annually for each plan; however, our annual investment performance for
one particular year does not, by itself, significantly influence our evaluation.
Weighted-average asset allocations for the past two fiscal years for our
defined benefit pension and other postretirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plans
|
|
|
Other Postretirement
Benefit Plans
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
Asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States equities
|
|
|
28.5
|
%
|
|
|
30.5
|
%
|
|
|
31.9
|
%
|
|
|
37.2
|
%
|
International equities
|
|
|
17.9
|
|
|
|
19.0
|
|
|
|
17.8
|
|
|
|
23.4
|
|
Private equities
|
|
|
7.8
|
|
|
|
8.3
|
|
|
|
3.6
|
|
|
|
3.9
|
|
Fixed income
|
|
|
31.7
|
|
|
|
28.6
|
|
|
|
40.0
|
|
|
|
29.4
|
|
Real assets
|
|
|
14.1
|
|
|
|
13.6
|
|
|
|
6.7
|
|
|
|
6.1
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
The investment objective for our defined benefit pension and other postretirement benefit plans is to secure the benefit
obligations to participants at a reasonable cost to us. Our goal is to optimize the long-term return on plan assets at a moderate level of risk. The defined benefit pension plan and other postretirement benefit plan portfolios are broadly
diversified across asset classes. Within asset classes, the portfolios are further diversified across investment styles and investment organizations. For the defined benefit pension plans, the long-term investment policy allocation is: 20 percent to
equities in the United States; 15 percent to international equities; 10 percent to private equities; 40 percent to fixed income; and 15 percent to real assets (real estate, energy, and timber). For other postretirement benefit plans, the long-term
investment policy allocations are: 30 percent to equities in the United States; 15 percent to international equities; 10 percent to private equities; 40 percent to fixed income; and 5 percent to real assets (real estate, energy, and timber). The
actual allocations to these asset classes may vary tactically around the long-term policy allocations based on relative market valuations.
Contributions and Future Benefit Payments
We do not
expect to be required to make contributions to our defined benefit pension, other postretirement benefit, and postemployment benefit plans in fiscal 2018. Actual fiscal 2018 contributions could exceed our current projections, as influenced by our
decision to undertake discretionary funding of our benefit trusts and future changes in regulatory requirements. Estimated benefit payments, which reflect expected future service, as appropriate, are expected to be paid from fiscal 2018 to 2027 as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
Defined
Benefit
Pension
Plans
|
|
|
Other
Postretirement
Benefit
Plans
Gross Payments
|
|
|
Medicare
Subsidy
Receipts
|
|
|
Postemployment
Benefit
Plans
|
|
|
|
2018
|
|
$
|
290.2
|
|
|
|
$ 59.5
|
|
|
|
$ 4.3
|
|
|
|
$21.2
|
|
2019
|
|
|
298.6
|
|
|
|
61.6
|
|
|
|
4.6
|
|
|
|
19.0
|
|
2020
|
|
|
307.7
|
|
|
|
63.0
|
|
|
|
4.2
|
|
|
|
17.4
|
|
2021
|
|
|
316.4
|
|
|
|
64.1
|
|
|
|
3.5
|
|
|
|
16.1
|
|
2022
|
|
|
325.7
|
|
|
|
64.8
|
|
|
|
3.6
|
|
|
|
15.0
|
|
2023-2027
|
|
|
1,767.8
|
|
|
|
328.8
|
|
|
|
18.8
|
|
|
|
61.5
|
|
|
|
Defined Contribution Plans
The General Mills Savings Plan is a defined contribution plan that covers domestic salaried, hourly, nonunion, and certain union employees. This plan is a
401(k) savings plan that includes a number of investment funds, including a Company stock fund and an Employee Stock Ownership Plan (ESOP). We sponsor another money purchase plan for certain domestic hourly employees with net assets of $23.0 million
as of May 28, 2017, and $21.0 million as of May 29, 2016. We also sponsor defined contribution plans in many of our foreign locations. Our total recognized expense related to defined contribution plans was $54.1 million in fiscal 2017,
$61.2 million in fiscal 2016, and $44.0 million in fiscal 2015.
87
We match a percentage of employee contributions to the General Mills Savings Plan. The Company match is directed
to investment options of the participants choosing. The number of shares of our common stock allocated to participants in the ESOP was 6.3 million as of May 28, 2017, and 6.9 million as of May 29, 2016. The ESOPs only
assets are our common stock and temporary cash balances.
The Company stock fund and the ESOP collectively held $598.7 million and $711.5 million of
Company common stock as of May 28, 2017 and May 29, 2016, respectively.
NOTE 14. INCOME TAXES
The components of earnings before income taxes and after-tax earnings from joint ventures and the corresponding income taxes thereon are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Earnings before income taxes and
after-tax earnings from joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,941.6
|
|
|
$
|
1,941.4
|
|
|
$
|
1,338.6
|
|
Foreign
|
|
|
329.7
|
|
|
|
462.2
|
|
|
|
423.3
|
|
|
|
Total earnings before income taxes and
after-tax earnings from joint ventures
|
|
$
|
2,271.3
|
|
|
$
|
2,403.6
|
|
|
$
|
1,761.9
|
|
|
|
Income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currently payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
368.5
|
|
|
$
|
489.8
|
|
|
$
|
392.7
|
|
State and local
|
|
|
21.1
|
|
|
|
30.8
|
|
|
|
29.3
|
|
Foreign
|
|
|
81.7
|
|
|
|
114.0
|
|
|
|
139.5
|
|
|
|
Total current
|
|
|
471.3
|
|
|
|
634.6
|
|
|
|
561.5
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
201.3
|
|
|
|
123.0
|
|
|
|
70.3
|
|
State and local
|
|
|
10.2
|
|
|
|
(6.9
|
)
|
|
|
(8.7
|
)
|
Foreign
|
|
|
(27.6
|
)
|
|
|
4.5
|
|
|
|
(36.3
|
)
|
|
|
Total deferred
|
|
|
183.9
|
|
|
|
120.6
|
|
|
|
25.3
|
|
|
|
Total income taxes
|
|
$
|
655.2
|
|
|
$
|
755.2
|
|
|
$
|
586.8
|
|
|
|
The following table reconciles the United States statutory income tax rate with our effective income tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
United States statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal tax benefits
|
|
|
0.8
|
|
|
|
0.7
|
|
|
|
0.7
|
|
Foreign rate differences
|
|
|
(3.5
|
)
|
|
|
(2.2
|
)
|
|
|
(3.1
|
)
|
Repatriation of foreign earnings
|
|
|
|
|
|
|
|
|
|
|
4.5
|
|
Non-deductible goodwill
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
Domestic manufacturing deduction
|
|
|
(2.8
|
)
|
|
|
(2.0
|
)
|
|
|
(2.9
|
)
|
Other, net (a)
|
|
|
(0.7
|
)
|
|
|
(2.7
|
)
|
|
|
(0.9
|
)
|
Effective income tax rate
|
|
|
28.8
|
%
|
|
|
31.4
|
%
|
|
|
33.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Fiscal 2016 includes 0.6 percent tax benefit related to the divestiture of our business in Venezuela. See Note 3 for additional information.
|
88
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
|
|
Accrued liabilities
|
|
$
|
70.0
|
|
|
$
|
89.9
|
|
Compensation and employee benefits
|
|
|
419.2
|
|
|
|
491.5
|
|
Pension
|
|
|
196.3
|
|
|
|
322.0
|
|
Tax credit carryforwards
|
|
|
18.4
|
|
|
|
4.5
|
|
Stock, partnership, and miscellaneous investments
|
|
|
276.4
|
|
|
|
353.6
|
|
Capital losses
|
|
|
29.8
|
|
|
|
14.5
|
|
Net operating losses
|
|
|
109.5
|
|
|
|
97.9
|
|
Other
|
|
|
85.6
|
|
|
|
84.1
|
|
|
|
Gross deferred tax assets
|
|
|
1,205.2
|
|
|
|
1,458.0
|
|
Valuation allowance
|
|
|
231.8
|
|
|
|
227.0
|
|
|
|
Net deferred tax assets
|
|
|
973.4
|
|
|
|
1,231.0
|
|
|
|
Brands
|
|
|
1,310.1
|
|
|
|
1,311.7
|
|
Fixed assets
|
|
|
484.5
|
|
|
|
476.3
|
|
Intangible assets
|
|
|
238.6
|
|
|
|
221.8
|
|
Tax lease transactions
|
|
|
45.8
|
|
|
|
48.0
|
|
Inventories
|
|
|
60.0
|
|
|
|
53.0
|
|
Stock, partnership, and miscellaneous investments
|
|
|
479.4
|
|
|
|
476.0
|
|
Unrealized hedges
|
|
|
45.4
|
|
|
|
22.6
|
|
Other
|
|
|
29.0
|
|
|
|
21.2
|
|
|
|
Gross deferred tax liabilities
|
|
|
2,692.8
|
|
|
|
2,630.6
|
|
|
|
Net deferred tax liability
|
|
$
|
1,719.4
|
|
|
$
|
1,399.6
|
|
|
|
We have established a valuation allowance against certain of the categories of deferred tax assets described above as current
evidence does not suggest we will realize sufficient taxable income of the appropriate character (e.g., ordinary income versus capital gain income) within the carryforward period to allow us to realize these deferred tax benefits.
Of the total valuation allowance of $231.8 million, the majority relates to a deferred tax asset for losses recorded as part of the Pillsbury acquisition in
the amount of $167.2 million, $53.3 million relates to various state and foreign loss carryforwards, and $11.1 million relates to various foreign capital loss carryforwards. As of May 28, 2017, we believe it is more-likely-than-not that the
remainder of our deferred tax assets are realizable.
We have $142.1 million of tax loss carryforwards. Of this amount, $125.3 million is foreign loss
carryforwards. The carryforward periods are as follows: $93.2 million do not expire; $3.7 million expire in fiscal 2018 and 2019; and $28.4 million expire in fiscal 2020 and beyond. The remaining $16.8 million are state operating loss carryforwards,
the majority of which expire after fiscal 2023.
We have not recognized a deferred tax liability for unremitted earnings of approximately $2.3 billion
from our foreign operations because our subsidiaries have invested or will invest the undistributed earnings indefinitely, or the earnings will be remitted in a tax-neutral transaction. It is not practicable for us to determine the amount of
unrecognized deferred tax liabilities on these indefinitely reinvested earnings. Deferred taxes are recorded for earnings of our foreign operations when we determine that such earnings are no longer indefinitely reinvested. In fiscal 2015, we
approved a one-time repatriation of $606.1 million of historical foreign earnings to reduce the economic cost of funding restructuring initiatives and the acquisition of Annies. We recorded a discrete tax charge of $78.6 million in fiscal 2015
related to this action. We have previously asserted that our historical foreign earnings are permanently reinvested and will only be repatriated in a tax-neutral manner, and this one-time repatriation does not change this on-going assertion.
We are subject to federal income taxes in the United States as well as various state, local, and foreign jurisdictions. A number of years may elapse before an
uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our liabilities for income taxes reflect the most
likely outcome. We adjust these liabilities, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position would usually require the use of cash.
The number of years with open tax audits varies depending on the tax jurisdiction.
Our major taxing jurisdictions include the United States (federal and state) and Canada. Various tax examinations by United States state taxing authorities could be conducted for any open tax year, which vary by jurisdiction, but are generally from
3 to 5 years.
89
Several state and foreign examinations are currently in progress. We do not expect these examinations to result
in a material impact on our results of operations or financial position.
During fiscal 2017, the Internal Revenue Service (IRS) concluded its field
examination of our federal tax returns for fiscal 2013 and 2014. The audit closure and related adjustments did not have a material impact on our results of operations or financial position. As of May 28, 2017, we have effectively settled all
issues with the IRS for fiscal years 2014 and prior.
During fiscal 2017, the Brazilian tax authority, Secretaria da Receita Federal do Brasil (RFB),
concluded audits of our 2012 and 2013 tax return years. These audits included a review of our determinations of amortization of certain goodwill arising from the acquisition of Yoki Alimentos S.A. (Yoki). The RFB has proposed adjustments that
effectively eliminate the goodwill amortization benefits related to this transaction. We believe we have meritorious defenses and intend to contest the disallowance.
We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit
that has a greater than 50 percent likelihood of being ultimately realized upon settlement. Future changes in judgment related to the expected ultimate resolution of uncertain tax positions will affect earnings in the period of such change.
The following table sets forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for fiscal 2017 and fiscal 2016.
Approximately $62 million of this total in fiscal 2017 represents the amount that, if recognized, would affect our effective income tax rate in future periods. This amount differs from the gross unrecognized tax benefits presented in the table
because certain of the liabilities below would impact deferred taxes if recognized. We also would record a decrease in U.S. federal income taxes upon recognition of the state tax benefits included therein.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
|
Balance, beginning of year
|
|
$
|
176.5
|
|
|
$
|
161.1
|
|
Tax positions related to current year:
|
|
|
|
|
|
|
|
|
Additions
|
|
|
27.2
|
|
|
|
31.6
|
|
Tax positions related to prior years:
|
|
|
|
|
|
|
|
|
Additions
|
|
|
0.9
|
|
|
|
23.9
|
|
Reductions
|
|
|
(47.9
|
)
|
|
|
(25.7
|
)
|
Settlements
|
|
|
(9.6
|
)
|
|
|
(4.0
|
)
|
Lapses in statutes of limitations
|
|
|
(11.6
|
)
|
|
|
(10.4
|
)
|
Balance, end of year
|
|
$
|
135.5
|
|
|
$
|
176.5
|
|
|
|
|
|
|
|
|
|
|
As of May 28, 2017, we expect to pay approximately $1.8 million of unrecognized tax benefit liabilities and accrued
interest within the next 12 months. We are not able to reasonably estimate the timing of future cash flows beyond 12 months due to uncertainties in the timing of tax audit outcomes. The remaining amount of our unrecognized tax liability was
classified in other liabilities.
We report accrued interest and penalties related to unrecognized tax benefit liabilities in income tax expense. For
fiscal 2017, we recognized a net benefit of $5.6 million of tax-related net interest and penalties, and had $23.1 million of accrued interest and penalties as of May 28, 2017. For fiscal 2016, we recognized a net benefit of $2.7 million of
tax-related net interest and penalties, and had $32.1 million of accrued interest and penalties as of May 29, 2016.
NOTE 15. LEASES, OTHER
COMMITMENTS, AND CONTINGENCIES
The Companys leases are generally for warehouse space and equipment. Rent expense under all operating leases
from continuing operations was $188.1 million in fiscal 2017, $189.1 million in fiscal 2016, and $193.5 million in fiscal 2015.
Some operating leases
require payment of property taxes, insurance, and maintenance costs in addition to the rent payments. Contingent and escalation rent in excess of minimum rent payments and sublease income netted in rent expense were insignificant.
90
Noncancelable future lease commitments are:
|
|
|
|
|
|
|
|
|
In Millions
|
|
|
Operating
Leases
|
|
|
|
Capital
Leases
|
|
Fiscal 2018
|
|
|
$118.8
|
|
|
|
$0.4
|
|
Fiscal 2019
|
|
|
101.7
|
|
|
|
0.4
|
|
Fiscal 2020
|
|
|
80.7
|
|
|
|
0.2
|
|
Fiscal 2021
|
|
|
60.7
|
|
|
|
0.1
|
|
Fiscal 2022
|
|
|
49.7
|
|
|
|
|
|
After fiscal 2022
|
|
|
89.1
|
|
|
|
0.1
|
|
Total noncancelable future lease commitments
|
|
|
$500.7
|
|
|
|
$1.2
|
|
|
|
|
|
|
|
|
|
|
Less: interest
|
|
|
|
|
|
|
(0.1
|
)
|
Present value of obligations under capital leases
|
|
|
|
|
|
|
$1.1
|
|
|
|
|
|
|
|
|
|
|
Depreciation on capital leases is recorded as depreciation expense in our results of operations.
As of May 28, 2017, we have issued guarantees and comfort letters of $504.7 million for the debt and other obligations of consolidated subsidiaries, and
guarantees and comfort letters of $165.3 million for the debt and other obligations of non-consolidated affiliates, mainly CPW. In addition, off-balance sheet arrangements are generally limited to the future payments under non-cancelable operating
leases, which totaled $500.7 million as of May 28, 2017.
NOTE 16. BUSINESS SEGMENT AND GEOGRAPHIC 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. As a result of this global reorganization, beginning in the third quarter of fiscal 2017, we reported results for our four operating segments as
follows: North America Retail, 65.3 percent of our fiscal 2017 consolidated net sales; Convenience Stores & Foodservice, 12.0 percent of our fiscal 2017 consolidated net sales; Europe & Australia, 11.7 percent of our fiscal 2017
consolidated net sales; and Asia & Latin America, 11.0 percent of our fiscal 2017 consolidated net sales. 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 Convenience Stores & Foodservice operating segment is unchanged. 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.
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.
Our North America Retail operating segment reflects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food
chains, drug, dollar and discount chains, and e-commerce grocery providers. Our product categories in this business segment are ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking
mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks, and a wide variety of organic products including refrigerated yogurt, nutrition bars, meal kits, salty snacks, ready-to-eat cereal, and grain snacks.
In our Convenience Stores & Foodservice segment our major product categories are ready-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 includes 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 company-owned retail shops. Revenues from
franchise fees are reported in the region or country where the franchisee is located.
91
Our Asia & Latin America operating segment consists of our former Asia/Pacific and Latin America
regions. The segment includes 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 company-owned retail shops. Our Asia & Latin America segment also
includes products manufactured in the United States for export, mainly to Caribbean and Latin American markets, as well as products we manufacture for sale to our international joint ventures. Revenues from export activities and franchise fees are
reported in the region or country where the end customer or franchisee is located.
Operating profit for these segments excludes unallocated corporate
items, gain 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 from mark-to-market valuation of certain commodity positions until passed back to our operating segments. These items affecting operating profit are centrally
managed at the corporate level and are excluded from the measure of segment profitability reviewed by executive management. Under our supply chain organization, our manufacturing, warehouse, and distribution activities are substantially integrated
across our operations in order to maximize efficiency and productivity. As a result, fixed assets and depreciation and amortization expenses are neither maintained nor available by operating segment.
Our operating segment results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Retail
|
|
$
|
10,196.9
|
|
|
$
|
10,936.6
|
|
|
$
|
11,612.1
|
|
Convenience Stores & Foodservice
|
|
|
1,870.0
|
|
|
|
1,923.8
|
|
|
|
1,995.1
|
|
Europe & Australia
|
|
|
1,824.5
|
|
|
|
1,998.0
|
|
|
|
2,126.5
|
|
Asia & Latin America
|
|
|
1,728.4
|
|
|
|
1,704.7
|
|
|
|
1,896.6
|
|
Total
|
|
$
|
15,619.8
|
|
|
$
|
16,563.1
|
|
|
$
|
17,630.3
|
|
Operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Retail
|
|
$
|
2,303.6
|
|
|
$
|
2,351.2
|
|
|
$
|
2,382.7
|
|
Convenience Stores & Foodservice
|
|
|
401.2
|
|
|
|
378.9
|
|
|
|
353.1
|
|
Europe & Australia
|
|
|
164.2
|
|
|
|
200.3
|
|
|
|
179.4
|
|
Asia & Latin America
|
|
|
83.6
|
|
|
|
69.1
|
|
|
|
119.8
|
|
Total segment operating profit
|
|
|
2,952.6
|
|
|
|
2,999.5
|
|
|
|
3,035.0
|
|
Unallocated corporate items
|
|
|
190.1
|
|
|
|
288.9
|
|
|
|
413.8
|
|
Divestitures loss (gain)
|
|
|
13.5
|
|
|
|
(148.2
|
)
|
|
|
|
|
Restructuring, impairment, and other exit costs
|
|
|
182.6
|
|
|
|
151.4
|
|
|
|
543.9
|
|
Operating profit
|
|
$
|
2,566.4
|
|
|
$
|
2,707.4
|
|
|
$
|
2,077.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
Net sales by class of similar products were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Snacks
|
|
$
|
3,302.2
|
|
|
$
|
3,297.2
|
|
|
$
|
3,392.0
|
|
Cereal
|
|
|
2,673.2
|
|
|
|
2,731.5
|
|
|
|
2,771.3
|
|
Convenient meals
|
|
|
2,653.6
|
|
|
|
2,779.0
|
|
|
|
2,810.3
|
|
Yogurt
|
|
|
2,403.5
|
|
|
|
2,760.9
|
|
|
|
2,938.3
|
|
Dough
|
|
|
1,690.6
|
|
|
|
1,820.0
|
|
|
|
1,877.0
|
|
Baking mixes and ingredients
|
|
|
1,654.1
|
|
|
|
1,704.3
|
|
|
|
1,867.7
|
|
Super-premium ice cream
|
|
|
738.4
|
|
|
|
731.2
|
|
|
|
769.5
|
|
Vegetables
|
|
|
310.5
|
|
|
|
532.3
|
|
|
|
937.3
|
|
Other
|
|
|
193.7
|
|
|
|
206.7
|
|
|
|
266.9
|
|
Total
|
|
$
|
15,619.8
|
|
|
$
|
16,563.1
|
|
|
$
|
17,630.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides financial information by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
11,160.9
|
|
|
$
|
11,930.9
|
|
|
$
|
12,501.8
|
|
Non-United States
|
|
|
4,458.9
|
|
|
|
4,632.2
|
|
|
|
5,128.5
|
|
Total
|
|
$
|
15,619.8
|
|
|
$
|
16,563.1
|
|
|
$
|
17,630.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
62.9
|
|
|
$
|
118.5
|
|
Non-United States
|
|
|
703.2
|
|
|
|
645.2
|
|
Total
|
|
$
|
766.1
|
|
|
$
|
763.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Land, buildings, and equipment:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,704.0
|
|
|
$
|
2,755.1
|
|
Non-United States
|
|
|
983.7
|
|
|
|
988.5
|
|
Total
|
|
$
|
3,687.7
|
|
|
$
|
3,743.6
|
|
|
|
|
|
|
|
|
|
|
NOTE 17. SUPPLEMENTAL INFORMATION
The components of certain Consolidated Balance Sheet accounts are as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Customers
|
|
$
|
1,454.4
|
|
|
$
|
1,390.4
|
|
Less allowance for doubtful accounts
|
|
|
(24.3
|
)
|
|
|
(29.6
|
)
|
Total
|
|
$
|
1,430.1
|
|
|
$
|
1,360.8
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials and packaging
|
|
$
|
395.4
|
|
|
$
|
397.3
|
|
Finished goods
|
|
|
1,224.3
|
|
|
|
1,163.1
|
|
Grain
|
|
|
73.0
|
|
|
|
72.6
|
|
Excess of FIFO over LIFO cost (a)
|
|
|
(209.1
|
)
|
|
|
(219.3
|
)
|
Total
|
|
$
|
1,483.6
|
|
|
$
|
1,413.7
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Inventories of $893.8 million as of May 28, 2017, and $841.0 million as of May 29, 2016, were valued at LIFO. The difference between replacement cost and the stated LIFO inventory value is not materially
different from the reserve for the LIFO valuation method.
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
Other receivables
|
|
$
|
163.7
|
|
|
$
|
159.3
|
|
Prepaid expenses
|
|
|
168.9
|
|
|
|
177.9
|
|
Derivative receivables, primarily commodity-related
|
|
|
35.0
|
|
|
|
44.6
|
|
Grain contracts
|
|
|
2.7
|
|
|
|
1.8
|
|
Miscellaneous
|
|
|
11.3
|
|
|
|
15.4
|
|
Total
|
|
$
|
381.6
|
|
|
$
|
399.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Land, buildings, and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
79.8
|
|
|
$
|
92.9
|
|
Buildings
|
|
|
2,249.2
|
|
|
|
2,236.0
|
|
Buildings under capital lease
|
|
|
0.3
|
|
|
|
0.3
|
|
Equipment
|
|
|
6,095.9
|
|
|
|
5,945.6
|
|
Equipment under capital lease
|
|
|
3.0
|
|
|
|
3.0
|
|
Capitalized software
|
|
|
545.4
|
|
|
|
523.0
|
|
Construction in progress
|
|
|
553.0
|
|
|
|
702.7
|
|
Total land, buildings, and equipment
|
|
|
9,526.6
|
|
|
|
9,503.5
|
|
Less accumulated depreciation
|
|
|
(5,838.9
|
)
|
|
|
(5,759.9
|
)
|
Total
|
|
$
|
3,687.7
|
|
|
$
|
3,743.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Investments in and advances to joint ventures
|
|
$
|
505.3
|
|
|
$
|
518.9
|
|
Pension assets
|
|
|
144.9
|
|
|
|
90.9
|
|
Exchangeable note with related party
|
|
|
|
|
|
|
12.7
|
|
Life insurance
|
|
|
25.6
|
|
|
|
26.3
|
|
Miscellaneous
|
|
|
110.1
|
|
|
|
102.9
|
|
Total
|
|
$
|
785.9
|
|
|
$
|
751.7
|
|
|
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
Accrued trade and consumer promotions
|
|
$
|
482.6
|
|
|
$
|
563.7
|
|
Accrued payroll
|
|
|
326.6
|
|
|
|
386.4
|
|
Dividends payable
|
|
|
21.5
|
|
|
|
23.8
|
|
Accrued taxes
|
|
|
58.0
|
|
|
|
110.5
|
|
Accrued interest, including interest rate swaps
|
|
|
83.8
|
|
|
|
90.4
|
|
Grain contracts
|
|
|
5.6
|
|
|
|
5.5
|
|
Restructuring and other exit costs reserve
|
|
|
85.0
|
|
|
|
76.6
|
|
Derivative payable
|
|
|
18.1
|
|
|
|
35.6
|
|
Miscellaneous
|
|
|
291.0
|
|
|
|
302.5
|
|
Total
|
|
$
|
1,372.2
|
|
|
$
|
1,595.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
May 28,
2017
|
|
|
May 29,
2016
|
|
Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
Accrued compensation and benefits, including obligations for underfunded other postretirement
benefit and postemployment benefit plans
|
|
$
|
1,249.7
|
|
|
$
|
1,755.0
|
|
Accrued taxes
|
|
|
162.3
|
|
|
|
204.0
|
|
Miscellaneous
|
|
|
111.1
|
|
|
|
128.6
|
|
Total
|
|
$
|
1,523.1
|
|
|
$
|
2,087.6
|
|
|
|
|
|
|
|
|
|
|
Certain Consolidated Statements of Earnings amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Depreciation and amortization
|
|
$
|
603.6
|
|
|
$
|
608.1
|
|
|
$
|
588.3
|
|
Research and development expense
|
|
|
218.2
|
|
|
|
222.1
|
|
|
|
229.4
|
|
Advertising and media expense (including production and communication costs)
|
|
|
623.8
|
|
|
|
754.4
|
|
|
|
823.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of interest, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Expense (Income), in Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest expense
|
|
$
|
306.7
|
|
|
$
|
319.6
|
|
|
$
|
335.5
|
|
Capitalized interest
|
|
|
(4.6
|
)
|
|
|
(7.7
|
)
|
|
|
(6.9
|
)
|
Interest income
|
|
|
(7.0
|
)
|
|
|
(8.1
|
)
|
|
|
(13.2
|
)
|
Interest, net
|
|
$
|
295.1
|
|
|
$
|
303.8
|
|
|
$
|
315.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain Consolidated Statements of Cash Flows amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
In Millions
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Cash interest payments
|
|
$
|
285.8
|
|
|
$
|
292.0
|
|
|
$
|
305.3
|
|
Cash paid for income taxes
|
|
|
551.1
|
|
|
|
533.8
|
|
|
|
562.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
NOTE 18. QUARTERLY DATA (UNAUDITED)
Summarized quarterly data for fiscal 2017 and fiscal 2016 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions, Except Per
Share Amounts
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net sales
|
|
$
|
3,907.9
|
|
|
$
|
4,207.9
|
|
|
$
|
4,112.1
|
|
|
$
|
4,424.9
|
|
|
$
|
3,793.2
|
|
|
$
|
4,002.4
|
|
|
$
|
3,806.6
|
|
|
$
|
3,927.9
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,416.9
|
|
|
|
1,554.6
|
|
|
|
1,519.5
|
|
|
|
1,540.6
|
|
|
|
1,307.7
|
|
|
|
1,357.5
|
|
|
|
1,319.7
|
|
|
|
1,376.8
|
|
Net earnings attributable
to General Mills
|
|
|
409.0
|
|
|
|
426.6
|
|
|
|
481.8
|
|
|
|
529.5
|
|
|
|
357.8
|
|
|
|
361.7
|
|
|
|
408.9
|
|
|
|
379.6
|
|
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.68
|
|
|
$
|
0.71
|
|
|
$
|
0.82
|
|
|
$
|
0.88
|
|
|
$
|
0.62
|
|
|
$
|
0.61
|
|
|
$
|
0.70
|
|
|
$
|
0.63
|
|
Diluted
|
|
$
|
0.67
|
|
|
$
|
0.69
|
|
|
$
|
0.80
|
|
|
$
|
0.87
|
|
|
$
|
0.61
|
|
|
$
|
0.59
|
|
|
$
|
0.69
|
|
|
$
|
0.62
|
|
Dividends per share
|
|
$
|
0.48
|
|
|
$
|
0.44
|
|
|
$
|
0.48
|
|
|
$
|
0.44
|
|
|
$
|
0.48
|
|
|
$
|
0.44
|
|
|
$
|
0.48
|
|
|
$
|
0.46
|
|
Market price of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
72.64
|
|
|
$
|
59.55
|
|
|
$
|
71.42
|
|
|
$
|
59.23
|
|
|
$
|
63.87
|
|
|
$
|
60.14
|
|
|
$
|
61.16
|
|
|
$
|
65.36
|
|
Low
|
|
$
|
62.78
|
|
|
$
|
54.36
|
|
|
$
|
60.65
|
|
|
$
|
55.41
|
|
|
$
|
59.23
|
|
|
$
|
54.12
|
|
|
$
|
55.91
|
|
|
$
|
58.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate for the fourth quarter of fiscal 2016 was 19.2 percent, primarily driven by tax credits and the impact
of the divestiture of our business in Venezuela.
During the fourth quarter of fiscal 2016, we sold our General Mills de Venezuela CA subsidiary to a
third party and exited our business in Venezuela. As a result of this transaction, we recorded a pre-tax loss of $37.6 million. In addition, we sold our General Mills Argentina S.A. foodservice business in Argentina to a third party and recorded a
pre-tax loss of $14.8 million.
96
Glossary
Accelerated depreciation associated with restructured assets.
The increase in depreciation expense caused by updating the salvage value and shortening
the useful life of depreciable fixed assets to coincide with the end of production under an approved restructuring plan, but only if impairment is not present.
AOCI
. Accumulated other comprehensive income (loss).
Adjusted average total capital.
Notes payable, long-term debt including current portion, redeemable interest, noncontrolling interests, and
stockholders equity excluding AOCI, and certain after-tax earnings adjustments are used to calculate adjusted return on average total capital. The average is calculated using the average of the beginning of fiscal year and end of fiscal year
Consolidated Balance Sheet amounts for these line items.
Adjusted operating profit margin.
Operating profit adjusted for certain items affecting
year-over-year comparability, divided by net sales.
Adjusted return on average total capital.
Net earnings including earnings attributable to
redeemable and noncontrolling interests, excluding after-tax net interest, and adjusted for certain items affecting year-over-year comparability, divided by adjusted average total capital.
Average total capital.
Notes payable, long-term debt including current portion, redeemable interest, noncontrolling interests, and stockholders
equity are used to calculate return on average total capital. The average is calculated using the average of the beginning of fiscal year and end of fiscal year Consolidated Balance Sheet amounts for these line items.
Constant currency.
Financial results translated to United States dollars using constant foreign currency exchange rates based on the rates in effect
for the comparable prior-year period. 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.
Core
working capital.
Accounts receivable plus inventories less accounts payable, all as of the last day of our 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 equity prices.
Euribor.
European Interbank Offered Rate.
Fair value
hierarchy.
For purposes of fair value measurement, we categorize assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. 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.
Free cash flow.
Net cash provided by operating activities less purchases of land, buildings, and equipment.
97
Free cash flow conversion rate.
Free cash flow divided by our net earnings, including earnings
attributable to redeemable and noncontrolling interests adjusted for certain items affecting year-over-year comparability.
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.
Gross margin.
Net sales less cost of sales.
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.
Holistic Margin Management (HMM).
Company-wide initiative to use productivity savings, mix management and price realization to offset
input cost inflation, protect margins and generate funds to reinvest in sales-generating activities.
Interest bearing instruments.
Notes payable,
long-term debt, including current portion, cash and cash equivalents, and certain interest bearing investments classified within prepaid expenses and other current assets and other assets.
LIBOR.
London Interbank Offered Rate.
Mark-to-market.
The act of determining a value for financial instruments, commodity contracts, and related assets or liabilities based on the current
market price for that item.
Net mark-to-market valuation of certain commodity positions.
Realized and unrealized gains and losses on derivative
contracts that will be allocated to segment operating profit when the exposure we are hedging affects earnings.
Net price realization.
The impact
of list and promoted price changes, net of trade and other price promotion costs.
Net realizable value.
The estimated selling price in the
ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Noncontrolling interests.
Interests of
consolidated subsidiaries held by third parties.
Notional principal amount.
The principal amount on which fixed-rate or floating-rate interest
payments are calculated.
OCI.
Other comprehensive income (loss).
Operating cash flow conversion rate.
Net cash provided by operating activities, divided by net earnings, including earnings attributable to redeemable
and noncontrolling interests.
Operating cash flow to debt ratio.
Net cash provided by operating activities, divided by the sum of notes payable
and long-term debt, including the current portion.
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.
Redeemable interest.
Interest of
consolidated subsidiaries held by a third party that can be redeemed outside of our control and therefore cannot be classified as a noncontrolling interest in equity.
Reporting unit.
An operating segment or a business one level below an operating segment.
98
Return on average total capital.
Net earnings including earnings attributable to redeemable and
noncontrolling interests, excluding after-tax net interest, divided by average total capital.
Segment operating profit margin.
Segment operating
profit divided by net sales for the segment.
Strategic Revenue Management (SRM).
A company-wide capability focused on generating sustainable
benefits from net price realization and mix by identifying and executing against specific opportunities to apply tools including pricing, sizing, mix management, and promotion optimization across each of our businesses.
Supply chain input costs.
Costs incurred to produce and deliver product, including costs for ingredients and conversion, inventory management,
logistics, and warehousing.
Total debt.
Notes payable and long-term debt, including current portion.
Translation adjustments.
The impact of the conversion of our foreign affiliates financial statements to United States dollars for the purpose of
consolidating our financial statements.
Variable interest entities (VIEs).
A legal structure that is used for business purposes that either
(1) does not have equity investors that have voting rights and share in all the entitys profits and losses or (2) has equity investors that do not provide sufficient financial resources to support the entitys activities.
Working capital.
Current assets and current liabilities, all as of the last day of our fiscal year.