Item 1.
|
Financial Statements
|
Consolidated
Statements of Earnings
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions, Except per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month
Period Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
Net sales
|
|
$
|
4,198.7
|
|
|
$
|
4,112.1
|
|
|
$
|
7,967.9
|
|
|
$
|
8,020.0
|
|
Cost of sales
|
|
|
2,755.7
|
|
|
|
2,592.6
|
|
|
|
5,214.8
|
|
|
|
5,083.6
|
|
Selling, general, and administrative expenses
|
|
|
711.6
|
|
|
|
708.1
|
|
|
|
1,390.7
|
|
|
|
1,420.3
|
|
Divestiture loss
|
|
|
|
|
|
|
13.5
|
|
|
|
|
|
|
|
13.5
|
|
Restructuring, impairment, and other exit costs
|
|
|
1.6
|
|
|
|
29.0
|
|
|
|
6.8
|
|
|
|
87.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
729.8
|
|
|
|
768.9
|
|
|
|
1,355.6
|
|
|
|
1,414.7
|
|
Interest, net
|
|
|
74.9
|
|
|
|
75.5
|
|
|
|
147.3
|
|
|
|
149.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and
after-tax
earnings
from joint ventures
|
|
|
654.9
|
|
|
|
693.4
|
|
|
|
1,208.3
|
|
|
|
1,265.3
|
|
Income taxes
|
|
|
234.9
|
|
|
|
227.4
|
|
|
|
403.4
|
|
|
|
404.0
|
|
After-tax
earnings from joint ventures
|
|
|
23.8
|
|
|
|
29.8
|
|
|
|
47.5
|
|
|
|
54.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to redeemable and noncontrolling interests
|
|
|
443.8
|
|
|
|
495.8
|
|
|
|
852.4
|
|
|
|
915.3
|
|
Net earnings attributable to redeemable and noncontrolling interests
|
|
|
13.3
|
|
|
|
14.0
|
|
|
|
17.2
|
|
|
|
24.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to General Mills
|
|
$
|
430.5
|
|
|
$
|
481.8
|
|
|
$
|
835.2
|
|
|
$
|
890.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
0.75
|
|
|
$
|
0.82
|
|
|
$
|
1.46
|
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - diluted
|
|
$
|
0.74
|
|
|
$
|
0.80
|
|
|
$
|
1.43
|
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.49
|
|
|
$
|
0.48
|
|
|
$
|
0.98
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
Consolidated Statements of Comprehensive Income
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month
Period Ended
|
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Net earnings, including earnings attributable to redeemable and noncontrolling
interests
|
|
$
|
443.8
|
|
|
$
|
495.8
|
|
|
$
|
852.4
|
|
|
$
|
915.3
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(42.0
|
)
|
|
|
(105.7
|
)
|
|
|
19.5
|
|
|
|
(25.3
|
)
|
|
|
|
|
|
Other fair value changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
0.5
|
|
|
|
(0.1
|
)
|
|
|
0.8
|
|
|
|
0.3
|
|
Hedge derivatives
|
|
|
(0.1
|
)
|
|
|
32.1
|
|
|
|
(8.9
|
)
|
|
|
47.3
|
|
|
|
|
|
|
Reclassification to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives
|
|
|
0.8
|
|
|
|
(7.8
|
)
|
|
|
0.6
|
|
|
|
(10.6
|
)
|
Amortization of losses and prior service costs
|
|
|
27.9
|
|
|
|
31.8
|
|
|
|
55.7
|
|
|
|
62.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
(12.9
|
)
|
|
|
(49.7
|
)
|
|
|
67.7
|
|
|
|
74.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
430.9
|
|
|
|
446.1
|
|
|
|
920.1
|
|
|
|
989.4
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to redeemable and noncontrolling interests
|
|
|
12.8
|
|
|
|
(43.5
|
)
|
|
|
84.8
|
|
|
|
(36.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to General Mills
|
|
$
|
418.1
|
|
|
$
|
489.6
|
|
|
$
|
835.3
|
|
|
$
|
1,026.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
Consolidated Balance Sheets
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except Par Value)
|
|
|
|
|
|
|
|
|
|
|
Nov. 26,
2017
|
|
|
May 28,
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
962.1
|
|
|
$
|
766.1
|
|
Receivables
|
|
|
1,510.5
|
|
|
|
1,430.1
|
|
Inventories
|
|
|
1,516.5
|
|
|
|
1,483.6
|
|
Prepaid expenses and other current assets
|
|
|
345.0
|
|
|
|
381.6
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,334.1
|
|
|
|
4,061.4
|
|
|
|
|
Land, buildings, and equipment
|
|
|
3,631.4
|
|
|
|
3,687.7
|
|
Goodwill
|
|
|
8,828.3
|
|
|
|
8,747.2
|
|
Other intangible assets
|
|
|
4,581.8
|
|
|
|
4,530.4
|
|
Other assets
|
|
|
815.9
|
|
|
|
785.9
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
22,191.5
|
|
|
$
|
21,812.6
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,467.0
|
|
|
$
|
2,119.8
|
|
Current portion of long-term debt
|
|
|
200.5
|
|
|
|
604.7
|
|
Notes payable
|
|
|
1,298.0
|
|
|
|
1,234.1
|
|
Other current liabilities
|
|
|
1,384.0
|
|
|
|
1,372.2
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
5,349.5
|
|
|
|
5,330.8
|
|
|
|
|
Long-term debt
|
|
|
8,228.3
|
|
|
|
7,642.9
|
|
Deferred income taxes
|
|
|
1,790.9
|
|
|
|
1,719.4
|
|
Other liabilities
|
|
|
1,439.7
|
|
|
|
1,523.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
16,808.4
|
|
|
|
16,216.2
|
|
|
|
|
|
|
|
|
|
|
Redeemable interest
|
|
|
793.4
|
|
|
|
910.9
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, 754.6 shares issued, $0.10 par value
|
|
|
75.5
|
|
|
|
75.5
|
|
Additional
paid-in
capital
|
|
|
1,243.3
|
|
|
|
1,120.9
|
|
Retained earnings
|
|
|
13,408.9
|
|
|
|
13,138.9
|
|
Common stock in treasury, at cost, shares of 186.0 and 177.7
|
|
|
(8,252.6
|
)
|
|
|
(7,762.9
|
)
|
Accumulated other comprehensive loss
|
|
|
(2,244.4
|
)
|
|
|
(2,244.5
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
4,230.7
|
|
|
|
4,327.9
|
|
|
|
|
Noncontrolling interests
|
|
|
359.0
|
|
|
|
357.6
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
4,589.7
|
|
|
|
4,685.5
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
22,191.5
|
|
|
$
|
21,812.6
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
Consolidated Statements of Total Equity and Redeemable Interest
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions, Except per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$.10 Par Value Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(One Billion Shares Authorized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
Treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Par Amount
|
|
|
Additional
Paid-In
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Non-
controlling
Interests
|
|
|
Total
Equity
|
|
|
Redeemable
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of May 29, 2016
|
|
|
754.6
|
|
|
$
|
75.5
|
|
|
$
|
1,177.0
|
|
|
|
(157.8
|
)
|
|
$
|
(6,326.6
|
)
|
|
$
|
12,616.5
|
|
|
$
|
(2,612.2
|
)
|
|
$
|
376.9
|
|
|
$
|
5,307.1
|
|
|
$
|
845.6
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,657.5
|
|
|
|
367.7
|
|
|
|
13.8
|
|
|
|
2,039.0
|
|
|
|
17.2
|
|
Cash dividends declared ($1.92 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,135.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,135.1
|
)
|
|
|
|
|
Shares purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.4
|
)
|
|
|
(1,651.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,651.5
|
)
|
|
|
|
|
Stock compensation plans (includes income tax benefits of $64.1)
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
|
|
5.5
|
|
|
|
215.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218.8
|
|
|
|
|
|
Unearned compensation related to restricted stock unit awards
|
|
|
|
|
|
|
|
|
|
|
(78.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78.5
|
)
|
|
|
|
|
Earned compensation
|
|
|
|
|
|
|
|
|
|
|
94.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94.9
|
|
|
|
|
|
Increase in redemption value of redeemable interest
|
|
|
|
|
|
|
|
|
|
|
(75.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75.9
|
)
|
|
|
75.9
|
|
Acquisition of interest in subsidiary
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
|
|
Distributions to noncontrolling and redeemable interest
holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33.2
|
)
|
|
|
(33.2
|
)
|
|
|
(27.8
|
)
|
Balance as of May 28, 2017
|
|
|
754.6
|
|
|
|
75.5
|
|
|
|
1,120.9
|
|
|
|
(177.7
|
)
|
|
|
(7,762.9
|
)
|
|
|
13,138.9
|
|
|
|
(2,244.5
|
)
|
|
|
357.6
|
|
|
|
4,685.5
|
|
|
|
910.9
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
835.2
|
|
|
|
0.1
|
|
|
|
28.1
|
|
|
|
863.4
|
|
|
|
56.7
|
|
Cash dividends declared ($0.98 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(565.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(565.2
|
)
|
|
|
|
|
Shares purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.9
|
)
|
|
|
(600.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(600.5
|
)
|
|
|
|
|
Stock compensation plans (includes income tax benefits of $20.2)
|
|
|
|
|
|
|
|
|
|
|
(20.6
|
)
|
|
|
2.6
|
|
|
|
110.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90.2
|
|
|
|
|
|
Unearned compensation related to restricted stock unit awards
|
|
|
|
|
|
|
|
|
|
|
(61.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61.2
|
)
|
|
|
|
|
Earned compensation
|
|
|
|
|
|
|
|
|
|
|
48.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48.6
|
|
|
|
|
|
Decrease in redemption value of redeemable interest
|
|
|
|
|
|
|
|
|
|
|
155.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155.6
|
|
|
|
(155.6
|
)
|
Distributions to noncontrolling and redeemable interest
holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26.7
|
)
|
|
|
(26.7
|
)
|
|
|
(18.6
|
)
|
Balance as of Nov. 26, 2017
|
|
|
754.6
|
|
|
$
|
75.5
|
|
|
$
|
1,243.3
|
|
|
|
(186.0
|
)
|
|
$
|
(8,252.6
|
)
|
|
$
|
13,408.9
|
|
|
$
|
(2,244.4
|
)
|
|
$
|
359.0
|
|
|
$
|
4,589.7
|
|
|
$
|
793.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
6
Consolidated Statements of Cash Flows
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions)
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended
|
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Cash Flows - Operating Activities
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to redeemable and noncontrolling interests
|
|
$
|
852.4
|
|
|
$
|
915.3
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
290.8
|
|
|
|
301.1
|
|
After-tax
earnings from joint ventures
|
|
|
(47.5
|
)
|
|
|
(54.0
|
)
|
Distributions of earnings from joint ventures
|
|
|
45.1
|
|
|
|
31.9
|
|
Stock-based compensation
|
|
|
48.2
|
|
|
|
56.2
|
|
Deferred income taxes
|
|
|
70.2
|
|
|
|
94.6
|
|
Pension and other postretirement benefit plan contributions
|
|
|
(12.6
|
)
|
|
|
(22.6
|
)
|
Pension and other postretirement benefit plan costs
|
|
|
2.4
|
|
|
|
17.9
|
|
Divestiture loss
|
|
|
|
|
|
|
13.5
|
|
Restructuring, impairment, and other exit costs
|
|
|
(7.4
|
)
|
|
|
71.0
|
|
Changes in current assets and liabilities
|
|
|
362.3
|
|
|
|
(340.9
|
)
|
Other, net
|
|
|
(37.1
|
)
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,566.8
|
|
|
|
1,078.7
|
|
|
|
|
|
|
|
|
|
|
Cash Flows - Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of land, buildings, and equipment
|
|
|
(260.0
|
)
|
|
|
(318.3
|
)
|
Investments in affiliates, net
|
|
|
(7.4
|
)
|
|
|
(7.7
|
)
|
Proceeds from disposal of land, buildings, and equipment
|
|
|
0.6
|
|
|
|
0.4
|
|
Proceeds from divestiture
|
|
|
|
|
|
|
17.5
|
|
Exchangeable note
|
|
|
|
|
|
|
13.0
|
|
Other, net
|
|
|
(3.9
|
)
|
|
|
15.1
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(270.7
|
)
|
|
|
(280.0
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows - Financing Activities
|
|
|
|
|
|
|
|
|
Change in notes payable
|
|
|
53.1
|
|
|
|
1,164.5
|
|
Issuance of long-term debt
|
|
|
500.0
|
|
|
|
|
|
Payment of long-term debt
|
|
|
(500.1
|
)
|
|
|
(0.1
|
)
|
Proceeds from common stock issued on exercised options
|
|
|
50.6
|
|
|
|
77.0
|
|
Purchases of common stock for treasury
|
|
|
(600.5
|
)
|
|
|
(1,349.9
|
)
|
Dividends paid
|
|
|
(565.2
|
)
|
|
|
(575.5
|
)
|
Distributions to noncontrolling and redeemable interest holders
|
|
|
(45.3
|
)
|
|
|
(4.6
|
)
|
Other, net
|
|
|
(23.6
|
)
|
|
|
(31.4
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(1,131.0
|
)
|
|
|
(720.0
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
30.9
|
|
|
|
(32.7
|
)
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
196.0
|
|
|
|
46.0
|
|
Cash and cash equivalents - beginning of year
|
|
|
766.1
|
|
|
|
763.7
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of period
|
|
$
|
962.1
|
|
|
$
|
809.7
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from changes in current assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
(53.9
|
)
|
|
$
|
(45.3
|
)
|
Inventories
|
|
|
(15.6
|
)
|
|
|
(120.7
|
)
|
Prepaid expenses and other current assets
|
|
|
42.3
|
|
|
|
(2.3
|
)
|
Accounts payable
|
|
|
377.0
|
|
|
|
(19.9
|
)
|
Other current liabilities
|
|
|
12.5
|
|
|
|
(152.7
|
)
|
|
|
|
|
|
|
|
|
|
Changes in current assets and liabilities
|
|
$
|
362.3
|
|
|
$
|
(340.9
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
7
GENERAL MILLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Background
The accompanying Consolidated Financial Statements of General Mills, Inc. (we, us, our, General Mills, or the Company) have been prepared in accordance with
accounting principles generally accepted in the United States for interim financial information and with the rules and regulations for reporting on Form
10-Q.
Accordingly, they do not include certain
information and disclosures required for comprehensive financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature, including the
elimination of all intercompany transactions and any noncontrolling and redeemable interests share of those transactions. Operating results for the quarter ended November 26, 2017 are not necessarily indicative of the results that may be
expected for the fiscal year ending May 27, 2018.
These statements should be read in conjunction with the Consolidated Financial Statements and
footnotes included in our Annual Report on Form
10-K
for the fiscal year ended May 28, 2017. The accounting policies used in preparing these Consolidated Financial Statements are the same as those
described in Note 2 to the Consolidated Financial Statements in that Form
10-K
with the exception of the new accounting requirements adopted in the first quarter of fiscal 2018 for stock-based payments and
goodwill impairment testing. See Note 16 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information. Certain terms used throughout this report are defined in the Glossary section below.
In the second quarter of fiscal 2018, we recorded an adjustment related to a prior year which increased income tax expense and total liabilities by
$42.2 million in our Consolidated Financial Statements. We determined the adjustment to be immaterial to our estimated Consolidated Statements of Earnings for the fiscal year ended May 27, 2018.
(2) Divestiture
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
arrangement with the purchaser. We received
$17.5 million in cash, and recorded a
pre-tax
loss of $13.5 million.
8
(3) Restructuring Initiatives
We are currently pursuing several multi-year restructuring initiatives designed to increase our efficiency and focus our business behind our key growth
strategies. Charges related to these activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
In Millions
|
|
Severance
|
|
|
Asset
Write-
offs
|
|
|
Accelerated
Depreciation
|
|
|
Other
|
|
|
Total
|
|
|
Severance
|
|
|
Asset
Write-
offs
|
|
|
Accelerated
Depreciation
|
|
|
Other
|
|
|
Total
|
|
Global reorganization
|
|
$
|
0.2
|
|
|
$
|
0.5
|
|
|
$
|
|
|
|
$
|
(0.1
|
)
|
|
$
|
0.6
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Closure of Melbourne, Australia plant
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
2.2
|
|
|
|
2.8
|
|
|
|
11.3
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
12.0
|
|
Restructuring of certain international product lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
|
|
2.2
|
|
|
|
(0.3
|
)
|
|
|
0.9
|
|
|
|
6.9
|
|
Closure of Vineland, New Jersey plant
|
|
|
(2.4
|
)
|
|
|
8.8
|
|
|
|
|
|
|
|
(7.7
|
)
|
|
|
(1.3
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
7.0
|
|
|
|
0.1
|
|
|
|
7.0
|
|
Project Compass
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project Century
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
(4.7
|
)
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
5.0
|
|
|
|
5.4
|
|
|
|
5.3
|
|
|
|
15.9
|
|
Total
|
|
$
|
(2.2
|
)
|
|
$
|
14.1
|
|
|
$
|
0.6
|
|
|
$
|
(10.3
|
)
|
|
$
|
2.2
|
|
|
$
|
15.5
|
|
|
$
|
7.2
|
|
|
$
|
12.8
|
|
|
$
|
6.3
|
|
|
$
|
41.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month
Period Ended
|
|
|
Six-Month
Period Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
In Millions
|
|
Severance
|
|
|
Asset
Write-
offs
|
|
|
Accelerated
Depreciation
|
|
|
Other
|
|
|
Total
|
|
|
Severance
|
|
|
Asset
Write-
offs
|
|
|
Accelerated
Depreciation
|
|
|
Other
|
|
|
Total
|
|
Global reorganization
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
1.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Closure of Melbourne, Australia plant
|
|
|
0.6
|
|
|
|
|
|
|
|
2.1
|
|
|
|
2.2
|
|
|
|
4.9
|
|
|
|
11.3
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
12.0
|
|
Restructuring of certain international product lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.4
|
|
|
|
35.8
|
|
|
|
(0.3
|
)
|
|
|
1.4
|
|
|
|
43.3
|
|
Closure of Vineland, New Jersey plant
|
|
|
(2.2
|
)
|
|
|
8.9
|
|
|
|
10.6
|
|
|
|
(5.2
|
)
|
|
|
12.1
|
|
|
|
12.3
|
|
|
|
|
|
|
|
14.0
|
|
|
|
1.6
|
|
|
|
27.9
|
|
Project Compass
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
1.0
|
|
Project Century
|
|
|
0.1
|
|
|
|
5.7
|
|
|
|
|
|
|
|
(4.3
|
)
|
|
|
1.5
|
|
|
|
0.5
|
|
|
|
8.1
|
|
|
|
14.6
|
|
|
|
6.9
|
|
|
|
30.1
|
|
Total
|
|
$
|
(1.1
|
)
|
|
$
|
15.2
|
|
|
$
|
12.7
|
|
|
$
|
(7.1
|
)
|
|
$
|
19.7
|
|
|
$
|
30.5
|
|
|
$
|
43.9
|
|
|
$
|
29.2
|
|
|
$
|
10.7
|
|
|
$
|
114.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of fiscal 2017, we approved restructuring actions designed to better align our organizational structure
with our strategic initiatives. This action will affect approximately 600 positions and we expect to incur approximately $76 million of net expenses relating to these actions, all of which will be cash. We recorded $0.6 million of
restructuring charges in the second quarter of fiscal 2018 and $1.4 million in the
six-month
period ended November 26, 2017 relating to these actions. We expect these actions to be completed by the
end of fiscal 2018.
In the second quarter of fiscal 2017, we notified the employees and their representatives of our decision to close our pasta
manufacturing facility in Melbourne, Australia in our Europe & Australia segment to improve our margin structure. This action will affect approximately 350 positions, and we expect to incur approximately $34 million of net expenses
relating to this action, of which approximately $3 million will be cash. We recorded $2.8 million of restructuring charges in the second quarter of fiscal 2018 and $4.9 million in the
six-month
period ended November 26, 2017 relating to this action. We recorded $12.0 million of restructuring charges in the second quarter of fiscal 2017 and $12.0 million in the
six-month
period ended
November 27, 2016. 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.
There have been no
restructuring charges in fiscal 2018 relating to these actions. We recorded $6.9 million of restructuring charges in the second quarter of fiscal 2017 and $43.3 million in the
six-month
period ended
November 27, 2016. We expect these actions to be completed by the end of fiscal 2019.
9
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 affected 380 positions, and we expect to incur approximately $54 million of net expenses relating to this action, of which approximately $11 million will be cash. We
recorded a net gain of $1.3 million primarily related to the sale of assets in the second quarter of fiscal 2018 and $12.1 million of restructuring charges in the
six-month
period ended
November 26, 2017. We recorded $7.0 million of restructuring expenses in the second quarter of fiscal 2017 and $27.9 million in the
six-month
period ended November 27, 2016. We expect this
action to be completed by the end of fiscal 2018.
During the
six-month
period ended November 26, 2017, we
paid $27.1 million in cash relating to restructuring initiatives and $43.3 million in the
six-month
period ended November 27, 2016.
In addition to restructuring charges, we recorded $4.2 million of project-related costs in cost of sales in the second quarter of fiscal 2018 and
$5.4 million in the
six-month
period ended November 26, 2017. We paid $5.0 million in cash in the
six-month
period ended November 26, 2017 for
project-related costs. We expect to incur approximately $8 million of project-related costs in future periods related to our restructuring initiatives.
Restructuring charges and project-related costs are recorded in our Consolidated Statements of Earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month Period Ended
|
|
In Millions
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
Cost of sales
|
|
$
|
0.6
|
|
|
$
|
12.8
|
|
|
$
|
12.9
|
|
|
$
|
26.4
|
|
Restructuring, impairment, and other exit
costs
|
|
|
1.6
|
|
|
|
29.0
|
|
|
|
6.8
|
|
|
|
87.9
|
|
Total restructuring charges
|
|
|
2.2
|
|
|
|
41.8
|
|
|
|
19.7
|
|
|
|
114.3
|
|
Project-related costs classified in cost of
sales
|
|
$
|
4.2
|
|
|
$
|
11.1
|
|
|
$
|
5.4
|
|
|
$
|
24.9
|
|
The roll forward of our restructuring and other exit cost reserves, included in other current liabilities, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
Severance
|
|
|
Contract
Termination
|
|
|
Other
Exit Costs
|
|
|
Total
|
|
Reserve balance as of May 28, 2017
|
|
$
|
81.8
|
|
|
$
|
0.7
|
|
|
$
|
2.5
|
|
|
$
|
85.0
|
|
Fiscal 2018 charges, including foreign currency translation
|
|
|
(2.0
|
)
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
(1.4
|
)
|
Utilized in fiscal 2018
|
|
|
(35.5
|
)
|
|
|
(0.7
|
)
|
|
|
(0.8
|
)
|
|
|
(37.0
|
)
|
Reserve balance as of Nov. 26, 2017
|
|
$
|
44.3
|
|
|
$
|
0.2
|
|
|
$
|
2.1
|
|
|
$
|
46.6
|
|
The charges recognized in the roll forward of our reserves for restructuring and other exit costs do not include items charged
directly to expense (e.g., asset impairment charges, accelerated depreciation, the gain or loss on the sale of restructured assets, and 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.
10
(4) Goodwill and Other Intangible Assets
The components of goodwill and other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
May 28,
2017
|
|
|
|
Goodwill
|
|
$
|
8,828.3
|
|
|
$
|
8,747.2
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
Brands and other indefinite-lived intangibles
|
|
|
4,203.4
|
|
|
|
4,161.1
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Franchise agreements, customer relationships, and other finite-lived intangibles
|
|
|
555.2
|
|
|
|
524.8
|
|
Less accumulated amortization
|
|
|
(176.8
|
)
|
|
|
(155.5
|
)
|
Intangible assets subject to amortization, net
|
|
|
378.4
|
|
|
|
369.3
|
|
Other intangible assets
|
|
|
4,581.8
|
|
|
|
4,530.4
|
|
Total
|
|
$
|
13,410.1
|
|
|
$
|
13,277.6
|
|
|
|
|
|
Based on the carrying value of finite-lived intangible assets as of November 26, 2017, annual amortization expense for
each of the next five fiscal years is estimated to be approximately $27 million.
During the third quarter of fiscal 2017, we announced a new global
organization structure to streamline our leadership, enhance global scale, and drive improved operational agility to maximize our growth capabilities. As a result of this global reorganization, we reassessed our operating segments as well as our
reporting units. Under our new organization structure, our chief operating decision maker assesses performance and makes decisions about resources to be allocated to our segments at the North America Retail, Convenience Stores &
Foodservice, Europe & Australia, and Asia & Latin America operating segment level. See Note 15 for additional information on our operating segments. Our reporting units were unchanged with the exception of combining our former U.S.
Meals and U.S. Baking reporting units into a single reporting unit.
The changes in the carrying amount of goodwill during fiscal 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
North
America
Retail
|
|
|
Convenience Stores
& Foodservice
|
|
|
Europe &
Australia
|
|
|
Asia & Latin
America
|
|
|
Joint
Ventures
|
|
|
Total
|
|
|
|
Balance as of May 28, 2017
|
|
$
|
6,406.5
|
|
|
$
|
918.8
|
|
|
$
|
700.8
|
|
|
$
|
312.4
|
|
|
$
|
408.7
|
|
|
$
|
8,747.2
|
|
Other activity, primarily foreign currency translation
|
|
|
6.5
|
|
|
|
|
|
|
|
43.5
|
|
|
|
3.7
|
|
|
|
27.4
|
|
|
|
81.1
|
|
|
|
Balance as of Nov. 26, 2017
|
|
$
|
6,413.0
|
|
|
$
|
918.8
|
|
|
$
|
744.3
|
|
|
$
|
316.1
|
|
|
$
|
436.1
|
|
|
$
|
8,828.3
|
|
|
|
|
|
The changes in the carrying amount of other intangible assets during fiscal 2018 were as follows:
|
|
|
|
|
In Millions
|
|
Total
|
|
|
|
Balance as of May 28, 2017
|
|
$
|
4,530.4
|
|
Other activity, primarily foreign currency translation
|
|
|
51.4
|
|
|
|
Balance as of Nov. 26, 2017
|
|
$
|
4,581.8
|
|
|
|
|
|
11
Our annual goodwill and indefinite-lived intangible assets impairment test was performed on the first day of the
second quarter of fiscal 2018 and we determined there was no impairment of our intangible assets as their related fair values were substantially in excess of the carrying values, except for the
Yoki
and
Progresso
brand intangible
assets and the Latin America reporting unit.
The excess fair value as of the fiscal 2018 test date of the
Yoki
and
Progresso
brand
intangible assets and the Latin America reporting unit is as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Carrying Value
of Intangible
Asset
|
|
|
Excess Fair Value as of
Fiscal 2018 Test Date
|
|
|
|
Yoki
|
|
$
|
138.2
|
|
|
|
1
|
%
|
Progresso
|
|
|
462.1
|
|
|
|
6
|
%
|
Latin America
|
|
$
|
272.0
|
|
|
|
21
|
%
|
|
|
|
|
In addition, while having significant coverage as of our fiscal 2018 assessment date, the
Food
Should
Taste
Good
and
Green
Giant
brand intangible assets and the U.S. Yogurt reporting unit had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.
(5) Inventories
The components of inventories were as
follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
May 28,
2017
|
|
|
|
Raw materials and packaging
|
|
$
|
400.7
|
|
|
$
|
395.4
|
|
Finished goods
|
|
|
1,211.6
|
|
|
|
1,224.3
|
|
Grain
|
|
|
118.9
|
|
|
|
73.0
|
|
Excess of FIFO over LIFO cost
|
|
|
(214.7
|
)
|
|
|
(209.1
|
)
|
|
|
Total
|
|
$
|
1,516.5
|
|
|
$
|
1,483.6
|
|
|
|
|
|
(6) Risk Management Activities
Many commodities we use in the production and distribution of our products are exposed to market price risks. We utilize derivatives to manage price risk for
our principal ingredients and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), 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, certain gains and losses are reported in unallocated corporate items outside of segment
operating results until such time that the exposure we are managing affects earnings. At that time we reclassify the gain or loss from unallocated corporate items to segment operating profit, allowing our operating segments to realize the economic
effects of the derivative without experiencing the resulting
mark-to-market
volatility, which remains in unallocated corporate items.
12
Unallocated corporate items for the quarters ended November 26, 2017 and November 27, 2016 included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month
Period Ended
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
|
Net gain (loss) on
mark-to-market
valuation of certain commodity positions
|
|
$
|
(0.6
|
)
|
|
$
|
3.0
|
|
|
$
|
(8.4
|
)
|
|
$
|
(15.9
|
)
|
Net loss on commodity positions reclassified from unallocated corporate items to segment
operating profit
|
|
|
2.5
|
|
|
|
14.4
|
|
|
|
6.1
|
|
|
|
23.7
|
|
Net
mark-to-market
revaluation of certain grain inventories
|
|
|
2.6
|
|
|
|
11.7
|
|
|
|
8.6
|
|
|
|
4.7
|
|
|
|
Net
mark-to-market
valuation of certain commodity positions recognized in unallocated corporate items
|
|
$
|
4.5
|
|
|
$
|
29.1
|
|
|
$
|
6.3
|
|
|
$
|
12.5
|
|
|
|
As of November 26, 2017, the net notional value of commodity derivatives was $96.9 million, of which
$36.6 million related to energy inputs and $60.3 million related to agricultural inputs. These contracts relate to inputs that generally will be utilized within the next 12 months.
In advance of planned debt financing, in fiscal 2018, we entered into $500.0 million of treasury locks due October 15, 2017 with an average fixed
rate of 1.8 percent. All of these treasury locks were cash settled for $3.7 million during the second quarter of fiscal 2018, concurrent with the issuance of our $500.0 million
5-year
fixed-rate
notes.
In advance of planned debt financing, during the third quarter of fiscal 2016 and the first quarter of fiscal 2017, we entered into
$400.0 million and $100.0 million, respectively, of treasury locks due February 15, 2017 with an average fixed rate of 2.0 percent. All of these treasury locks were cash settled for $17.2 million during the third quarter of
fiscal 2017, concurrent with the issuance of our $750.0 million
10-year
fixed-rate notes.
The fair values of
the derivative positions used in our risk management activities and other assets recorded at fair value were not material as of November 26, 2017, and were Level 1 or Level 2 assets and liabilities in the fair value hierarchy. We did
not significantly change our valuation techniques from prior periods.
We offer certain suppliers access to third party services that allow 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 November 26,
2017, $873.5 million of our total accounts payable were payable to suppliers who utilize these third party services.
13
(7) Debt
The components of notes payable were as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
May 28,
2017
|
|
U.S. commercial paper
|
|
$
|
997.7
|
|
|
$
|
954.7
|
|
Financial institutions
|
|
|
300.3
|
|
|
|
279.4
|
|
Total
|
|
$
|
1,298.0
|
|
|
$
|
1,234.1
|
|
|
|
|
|
|
|
|
|
|
To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding notes payable. Commercial
paper is a continuing source of short-term financing. We have commercial paper programs available to us in the United States and Europe. We also have committed, uncommitted, and asset-backed credit lines that support our foreign operations.
The following table details the
fee-paid
committed and uncommitted credit lines we had available as of
November 26, 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
|
|
|
|
0.2
|
|
Total committed and uncommitted credit facilities
|
|
$
|
3.4
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
The credit facilities contain covenants, including a requirement to maintain a fixed charge coverage ratio of at least 2.5
times. We were in compliance with all credit facility covenants as of November 26, 2017.
Long-Term Debt
The fair values and carrying amounts of long-term debt, including the current portion, were $8,735.5 million and $8,428.8 million, respectively, as
of November 26, 2017. The fair value of long-term debt was estimated using market quotations and discounted cash flows based on our current incremental borrowing rates for similar types of instruments. Long-term debt is a Level 2 liability
in the fair value hierarchy.
In October 2017, we issued $500.0 million principal amount of 2.6 percent fixed-rate notes due October 12,
2022. Interest on the notes is payable semi-annually in arrears. We may redeem the notes in whole, or in part, at any time at the applicable redemption price. The notes are senior unsecured obligations that include a change of control repurchase
provision. The net proceeds, together with cash on hand, were used to repay $500.0 million of 1.4 percent fixed-rate notes.
In March 2017, 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.
Certain
of our long-term debt agreements contain restrictive covenants. As of November 26, 2017, we were in compliance with all of these covenants.
14
(8) Redeemable and Noncontrolling Interests
We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl.
Sodiaal International (Sodiaal) holds the remaining interests in each of the entities. On the acquisition date, we recorded the $904.4 million fair value of 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 November 26, 2017, the redemption value of the euro-denominated redeemable interest was $793.4 million.
A subsidiary of Yoplait SAS has an exclusive milk supply agreement for its European operations with Sodiaal through July 1, 2021. Net purchases totaled
$112.3 million for the
six-month
period ended November 26, 2017 and $86.2 million for the
six-month
period ended November 27, 2016.
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.
The third-party holder of the Class A Interests in
our General Mills Cereals, LLC (GMC) consolidated subsidiary receives quarterly preferred distributions from available net income based on the application of a floating preferred return rate to the holders capital account balance established
in the most recent
mark-to-market
valuation (currently $251.5 million). The preferred return rate is adjusted every three years through a negotiated agreement with the
Class A Interest holder or through a remarketing auction. On June 1, 2015, the floating preferred return rate on GMCs Class A Interests was reset to the sum of three-month LIBOR plus 125 basis points.
Our noncontrolling interests contain restrictive covenants. As of November 26, 2017, we were in compliance with all of these covenants.
15
(9) Stockholders Equity
The following tables provide details of total comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
|
|
General Mills
|
|
|
Noncontrolling
Interests
|
|
|
Redeemable
Interest
|
|
|
General Mills
|
|
|
Noncontrolling
Interests
|
|
|
Redeemable
Interest
|
|
In Millions
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
Net earnings, including earnings attributable to
redeemable and noncontrolling interests
|
|
|
|
|
|
|
|
|
|
$
|
430.5
|
|
|
$
|
4.5
|
|
|
$
|
8.8
|
|
|
|
|
|
|
|
|
|
|
$
|
481.8
|
|
|
$
|
6.0
|
|
|
$
|
8.0
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
$
|
(43.3
|
)
|
|
$
|
|
|
|
|
(43.3
|
)
|
|
|
0.6
|
|
|
|
0.7
|
|
|
$
|
(49.6
|
)
|
|
$
|
|
|
|
|
(49.6
|
)
|
|
|
(18.0
|
)
|
|
|
(38.1
|
)
|
Other fair value changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
0.9
|
|
|
|
(0.4
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
Hedge derivatives
|
|
|
3.5
|
|
|
|
(2.5
|
)
|
|
|
1.0
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
48.5
|
|
|
|
(16.0
|
)
|
|
|
32.5
|
|
|
|
|
|
|
|
(0.4
|
)
|
Reclassification to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives (a)
|
|
|
2.5
|
|
|
|
(1.0
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
(7.0
|
)
|
|
|
0.2
|
|
|
|
(6.8
|
)
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of losses and prior service
costs (b)
|
|
|
43.8
|
|
|
|
(15.9
|
)
|
|
|
27.9
|
|
|
|
|
|
|
|
|
|
|
|
51.4
|
|
|
|
(19.6
|
)
|
|
|
31.8
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
7.4
|
|
|
$
|
(19.8
|
)
|
|
|
(12.4
|
)
|
|
|
0.6
|
|
|
|
(1.1
|
)
|
|
$
|
43.2
|
|
|
$
|
(35.4
|
)
|
|
|
7.8
|
|
|
|
(18.0
|
)
|
|
|
(39.5
|
)
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
418.1
|
|
|
$
|
5.1
|
|
|
$
|
7.7
|
|
|
|
|
|
|
|
|
|
|
$
|
489.6
|
|
|
$
|
(12.0
|
)
|
|
$
|
(31.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
(Gain) loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and selling, general, and administrative (SG&A) expenses for foreign exchange contracts.
|
(b)
|
Loss reclassified from AOCI into earnings is reported in SG&A expenses.
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended
|
|
|
Six-Month Period Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
|
|
General Mills
|
|
|
Noncontrolling
Interests
|
|
|
Redeemable
Interest
|
|
|
General Mills
|
|
|
Noncontrolling
Interests
|
|
|
Redeemable
Interest
|
|
In Millions
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
Net earnings, including earnings attributable to
redeemable and noncontrolling interests
|
|
|
|
|
|
|
|
|
|
$
|
835.2
|
|
|
$
|
6.0
|
|
|
$
|
11.2
|
|
|
|
|
|
|
|
|
|
|
$
|
890.8
|
|
|
$
|
7.8
|
|
|
$
|
16.7
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
$
|
(48.6
|
)
|
|
$
|
|
|
|
|
(48.6
|
)
|
|
|
22.1
|
|
|
|
46.0
|
|
|
$
|
37.0
|
|
|
$
|
|
|
|
|
37.0
|
|
|
|
(15.2
|
)
|
|
|
(47.1
|
)
|
Other fair value changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
1.3
|
|
|
|
(0.5
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
(0.2
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
Hedge derivatives
|
|
|
(12.2
|
)
|
|
|
2.7
|
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
0.6
|
|
|
|
58.7
|
|
|
|
(14.1
|
)
|
|
|
44.6
|
|
|
|
|
|
|
|
2.7
|
|
Reclassification to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives (a)
|
|
|
3.3
|
|
|
|
(1.6
|
)
|
|
|
1.7
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
(8.6
|
)
|
|
|
(0.4
|
)
|
|
|
(9.0
|
)
|
|
|
|
|
|
|
(1.6
|
)
|
Amortization of losses and prior service costs
(b)
|
|
|
87.6
|
|
|
|
(31.9
|
)
|
|
|
55.7
|
|
|
|
|
|
|
|
|
|
|
|
100.8
|
|
|
|
(38.4
|
)
|
|
|
62.4
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
31.4
|
|
|
$
|
(31.3
|
)
|
|
|
0.1
|
|
|
|
22.1
|
|
|
|
45.5
|
|
|
$
|
188.4
|
|
|
$
|
(53.1
|
)
|
|
|
135.3
|
|
|
|
(15.2
|
)
|
|
|
(46.0
|
)
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
835.3
|
|
|
$
|
28.1
|
|
|
$
|
56.7
|
|
|
|
|
|
|
|
|
|
|
$
|
1,026.1
|
|
|
$
|
(7.4
|
)
|
|
$
|
(29.3
|
)
|
|
|
(a)
|
(Gain) loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.
|
(b)
|
Loss reclassified from AOCI into earnings is reported in SG&A expenses.
|
Accumulated other comprehensive
loss balances, net of tax effects, were as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
May 28,
2017
|
|
Foreign currency translation adjustments
|
|
$
|
(673.3
|
)
|
|
$
|
(624.7
|
)
|
Unrealized gain (loss) from:
|
|
|
|
|
|
|
|
|
Securities
|
|
|
5.4
|
|
|
|
4.6
|
|
Hedge derivatives
|
|
|
(6.3
|
)
|
|
|
1.5
|
|
Pension, other postretirement, and postemployment benefits:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
(1,588.8
|
)
|
|
|
(1,645.4
|
)
|
Prior service credits
|
|
|
18.6
|
|
|
|
19.5
|
|
Accumulated other comprehensive loss
|
|
$
|
(2,244.4
|
)
|
|
$
|
(2,244.5
|
)
|
|
|
17
(10) Stock Plans
We have various stock-based compensation programs under which awards, including stock options, restricted stock, restricted stock units, and performance
awards, may be granted to employees and
non-employee
directors. These programs and related accounting are described in Note 11 to the Consolidated Financial Statements included in our Annual Report on Form
10-K
for the fiscal year ended May 28, 2017, and Note 16 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Compensation expense related to stock-based payments recognized in the Consolidated Statements of Earnings was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month
Period Ended
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Compensation expense related to stock-based
payments
|
|
$
|
19.3
|
|
|
$
|
18.6
|
|
|
$
|
48.9
|
|
|
$
|
57.6
|
|
|
|
Compensation expense related to stock-based payments recognized in the Consolidated Statements of Earnings includes amounts
recognized in restructuring, impairment, and other exit costs in fiscal 2017 and fiscal 2018.
As of November 26, 2017, unrecognized compensation
expense related to
non-vested
stock options, restricted stock units, and performance share units was $128.4 million. This expense will be recognized over 25 months, on average.
Net cash proceeds from the exercise of stock options less shares used for withholding taxes and the intrinsic value of options exercised were as follows:
|
|
|
|
|
|
|
|
|
|
|
Six-Month
Period Ended
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Net cash proceeds
|
|
$
|
50.6
|
|
|
$
|
77.0
|
|
Intrinsic value of options exercised
|
|
$
|
46.0
|
|
|
$
|
131.9
|
|
|
|
We estimate the fair value of each stock option on the grant date using a Black-Scholes option-pricing model. Black-Scholes
option-pricing models require us to make predictive assumptions regarding future stock price volatility, employee exercise behavior, and dividend yield. We estimate our future stock price volatility using the historical volatility over the expected
term of the option, excluding time periods of volatility we believe a marketplace participant would exclude in estimating our stock price volatility. We also have considered, but did not use, implied volatility in our estimate, because trading
activity in options on our stock, especially those with tenors of greater than 6 months, is insufficient to provide a reliable measure of expected volatility. Our method of selecting the other valuation assumptions is explained in Note 11 to the
Consolidated Financial Statements included in our Annual Report on Form
10-K
for the fiscal year ended May 28, 2017.
The estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended
|
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Estimated fair values of stock options granted
|
|
$
|
6.18
|
|
|
$
|
8.80
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
2.2
|
%
|
|
|
1.7
|
%
|
Expected term
|
|
|
8.2 years
|
|
|
|
8.5 years
|
|
Expected volatility
|
|
|
15.8
|
%
|
|
|
17.8
|
%
|
Dividend yield
|
|
|
3.6
|
%
|
|
|
2.9
|
%
|
18
Information on stock option activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
(Thousands)
|
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
(Millions)
|
|
Balance as of May 28, 2017
|
|
|
29,834.4
|
|
|
$
|
40.47
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,816.7
|
|
|
|
55.52
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,930.2
|
)
|
|
|
31.13
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(85.4
|
)
|
|
|
58.11
|
|
|
|
|
|
|
|
|
|
Outstanding as of Nov. 26, 2017
|
|
|
30,635.5
|
|
|
$
|
42.40
|
|
|
|
4.47
|
|
|
$
|
384.7
|
|
Exercisable as of Nov. 26, 2017
|
|
|
21,551.0
|
|
|
$
|
35.81
|
|
|
|
2.88
|
|
|
$
|
384.7
|
|
|
|
Information on restricted stock and performance share unit activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Classified
|
|
|
Liability Classified
|
|
|
|
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 28, 2017
|
|
|
4,491.2
|
|
|
$
|
56.08
|
|
|
|
123.3
|
|
|
$
|
56.93
|
|
Granted
|
|
|
1,448.4
|
|
|
|
55.34
|
|
|
|
43.0
|
|
|
|
55.49
|
|
Vested
|
|
|
(1,509.5
|
)
|
|
|
49.80
|
|
|
|
(35.8
|
)
|
|
|
49.36
|
|
Forfeited
|
|
|
(330.0
|
)
|
|
|
63.98
|
|
|
|
(8.2
|
)
|
|
|
58.91
|
|
Non-vested
as of Nov. 26, 2017
|
|
|
4,100.1
|
|
|
$
|
57.49
|
|
|
|
122.3
|
|
|
$
|
58.34
|
|
|
|
The total grant date fair value of restricted stock unit awards that vested during the period follows:
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Total grant date fair value
|
|
$
|
77.0
|
|
|
$
|
59.6
|
|
|
|
19
(11) Earnings Per Share
Basic and diluted earnings per share (EPS) were calculated using the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month
Period Ended
|
|
In Millions, Except per Share Data
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Net earnings attributable to General Mills
|
|
$
|
430.5
|
|
|
$
|
481.8
|
|
|
$
|
835.2
|
|
|
$
|
890.8
|
|
|
|
Average number of common shares - basic EPS
|
|
|
571.3
|
|
|
|
588.8
|
|
|
|
574.0
|
|
|
|
594.4
|
|
Incremental share effect from: (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
7.0
|
|
|
|
8.1
|
|
|
|
7.6
|
|
|
|
8.8
|
|
Restricted stock, restricted stock units, and
other
|
|
|
2.0
|
|
|
|
2.8
|
|
|
|
2.0
|
|
|
|
2.8
|
|
Average number of common shares - diluted EPS
|
|
|
580.3
|
|
|
|
599.7
|
|
|
|
583.6
|
|
|
|
606.0
|
|
|
|
Earnings per share - basic
|
|
$
|
0.75
|
|
|
$
|
0.82
|
|
|
$
|
1.46
|
|
|
$
|
1.50
|
|
Earnings per share - diluted
|
|
$
|
0.74
|
|
|
$
|
0.80
|
|
|
$
|
1.43
|
|
|
$
|
1.47
|
|
|
|
(a)
|
Incremental shares from stock options, restricted stock units, and performance share units are computed by the treasury stock method. Stock options, restricted stock units, and performance share units excluded from our
computation of diluted EPS because they were not dilutive were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month
Period Ended
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Anti-dilutive stock options, restricted stock units,
and performance share units
|
|
|
9.2
|
|
|
|
2.5
|
|
|
|
7.5
|
|
|
|
2.2
|
|
|
|
(12) Share Repurchases
Share repurchases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month
Period Ended
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Shares of common stock
|
|
|
|
|
|
|
14.9
|
|
|
|
10.9
|
|
|
|
20.5
|
|
Aggregate purchase price
|
|
$
|
0.2
|
|
|
$
|
950.2
|
|
|
$
|
600.5
|
|
|
$
|
1,349.9
|
|
|
|
(13) Statements of Cash Flows
Our Consolidated Statements of Cash Flows include the following:
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Net cash interest payments
|
|
$
|
133.7
|
|
|
$
|
141.9
|
|
Net income tax payments
|
|
$
|
333.0
|
|
|
$
|
290.8
|
|
|
|
20
(14) Retirement and Postemployment Benefits
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.
Components of net periodic benefit expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plans
|
|
|
Other Postretirement
Benefit Plans
|
|
|
Postemployment
Benefit Plans
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Service cost
|
|
$
|
25.7
|
|
|
$
|
30.0
|
|
|
$
|
2.9
|
|
|
$
|
3.1
|
|
|
$
|
2.2
|
|
|
$
|
2.2
|
|
Interest cost
|
|
|
54.5
|
|
|
|
54.1
|
|
|
|
7.6
|
|
|
|
7.9
|
|
|
|
0.5
|
|
|
|
0.7
|
|
Expected return on plan assets
|
|
|
(120.1
|
)
|
|
|
(121.7
|
)
|
|
|
(13.1
|
)
|
|
|
(12.1
|
)
|
|
|
|
|
|
|
|
|
Amortization of losses
|
|
|
44.1
|
|
|
|
47.6
|
|
|
|
0.2
|
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
0.5
|
|
Amortization of prior service costs (credits)
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
(1.3
|
)
|
|
|
(1.3
|
)
|
|
|
0.1
|
|
|
|
0.1
|
|
Other adjustments
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
1.3
|
|
|
|
3.4
|
|
|
|
3.4
|
|
Settlement or curtailment losses
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
Net expense (income)
|
|
$
|
4.7
|
|
|
$
|
15.6
|
|
|
$
|
(3.7
|
)
|
|
$
|
0.3
|
|
|
$
|
6.4
|
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plans
|
|
|
Other Postretirement
Benefit Plans
|
|
|
Postemployment
Benefit Plans
|
|
|
|
Six-Month
Period Ended
|
|
|
Six-Month
Period Ended
|
|
|
Six-Month
Period Ended
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Service cost
|
|
$
|
51.4
|
|
|
$
|
60.0
|
|
|
$
|
5.8
|
|
|
$
|
6.2
|
|
|
$
|
4.3
|
|
|
$
|
4.4
|
|
Interest cost
|
|
|
108.9
|
|
|
|
108.3
|
|
|
|
15.2
|
|
|
|
16.0
|
|
|
|
1.1
|
|
|
|
1.4
|
|
Expected return on plan assets
|
|
|
(240.0
|
)
|
|
|
(243.5
|
)
|
|
|
(26.1
|
)
|
|
|
(24.2
|
)
|
|
|
|
|
|
|
|
|
Amortization of losses
|
|
|
88.2
|
|
|
|
95.0
|
|
|
|
0.4
|
|
|
|
1.3
|
|
|
|
0.4
|
|
|
|
0.9
|
|
Amortization of prior service costs (credits)
|
|
|
1.0
|
|
|
|
1.2
|
|
|
|
(2.7
|
)
|
|
|
(2.6
|
)
|
|
|
0.3
|
|
|
|
0.3
|
|
Other adjustments
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
1.3
|
|
|
|
6.8
|
|
|
|
6.8
|
|
Settlement or curtailment losses
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
Net expense (income)
|
|
$
|
9.5
|
|
|
$
|
27.5
|
|
|
$
|
(7.4
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
12.9
|
|
|
$
|
13.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
(15) Business Segment Information
We operate in the consumer foods industry. In the third quarter of fiscal 2017, we announced a new global organization structure to streamline our leadership,
enhance global scale, and drive improved operational agility to maximize our growth capabilities. This global reorganization required us to reevaluate our operating segments. Under our new organization structure, our chief operating decision maker
assesses performance and makes decisions about resources to be allocated to our operating segments as follows: North America Retail; Convenience Stores & Foodservice; Europe & Australia; and Asia & Latin America.
We have restated our net sales by segment and segment operating profit to reflect our new operating segments. These segment changes had no effect on
previously reported consolidated net sales, operating profit, net earnings attributable to General Mills, or earnings per share.
Our North America Retail
operating segment consists of our former U.S. Retail operating units and our Canada region. Within our North America Retail operating segment, our former U.S. Meals operating unit and U.S. Baking operating unit have been combined into one operating
unit: U.S. Meals & Baking. The segment reflects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains, 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.
Our Europe &
Australia operating segment consists of our former Europe region. The segment reflects retail and foodservice businesses in the greater Europe and Australia regions. Our product categories include refrigerated yogurt, meal kits, super-premium ice
cream, refrigerated and frozen dough products, shelf stable vegetables, grain snacks, and dessert and baking mixes. We also sell super-premium ice cream directly to consumers through owned retail shops. Revenues from franchise fees are reported in
the region or country where the end customer is located.
Our Convenience Stores & Foodservice operating segment was unchanged. Our major product
categories in this segment 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 Asia & Latin America operating segment consists of our former Asia/Pacific and Latin America regions. The segment consists of retail
and foodservice businesses in the greater Asia and South America regions. Our product categories include super-premium ice cream and frozen desserts, refrigerated and frozen dough products, dessert and baking mixes, meal kits, salty and grain
snacks, wellness beverages, and refrigerated yogurt. We also sell super-premium ice cream and frozen desserts directly to consumers through owned retail shops. Our Asia & Latin America segment also includes products manufactured in the
United States for export, mainly to Caribbean and Latin American markets, as well as products we manufacture for sale to our international joint ventures. Revenues from export activities are reported in the region or country where the end customer
is located.
Operating profit for these segments excludes unallocated corporate items, gain or loss on divestitures, and restructuring, impairment, and
other exit costs. Unallocated corporate items include corporate overhead expenses, variances to planned domestic employee benefits and incentives, contributions to the General Mills Foundation, 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.
22
Our operating segment results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month Period
Ended
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Retail
|
|
$
|
2,771.8
|
|
|
$
|
2,748.8
|
|
|
$
|
5,210.0
|
|
|
$
|
5,305.8
|
|
Convenience Stores & Foodservice
|
|
|
512.2
|
|
|
|
487.5
|
|
|
|
959.3
|
|
|
|
933.8
|
|
Europe & Australia
|
|
|
466.7
|
|
|
|
435.1
|
|
|
|
958.6
|
|
|
|
913.5
|
|
Asia & Latin America
|
|
|
448.0
|
|
|
|
440.7
|
|
|
|
840.0
|
|
|
|
866.9
|
|
Total
|
|
$
|
4,198.7
|
|
|
$
|
4,112.1
|
|
|
$
|
7,967.9
|
|
|
$
|
8,020.0
|
|
Operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Retail
|
|
$
|
622.9
|
|
|
$
|
651.0
|
|
|
$
|
1,156.1
|
|
|
$
|
1,279.2
|
|
Convenience Stores & Foodservice
|
|
|
106.5
|
|
|
|
109.1
|
|
|
|
191.3
|
|
|
|
201.8
|
|
Europe & Australia
|
|
|
26.9
|
|
|
|
41.3
|
|
|
|
57.5
|
|
|
|
85.2
|
|
Asia & Latin America
|
|
|
16.7
|
|
|
|
29.0
|
|
|
|
32.2
|
|
|
|
51.3
|
|
Total segment operating profit
|
|
|
773.0
|
|
|
|
830.4
|
|
|
|
1,437.1
|
|
|
|
1,617.5
|
|
Unallocated corporate items
|
|
|
41.6
|
|
|
|
19.0
|
|
|
|
74.7
|
|
|
|
101.4
|
|
Divestiture loss
|
|
|
|
|
|
|
13.5
|
|
|
|
|
|
|
|
13.5
|
|
Restructuring, impairment, and other exit
costs
|
|
|
1.6
|
|
|
|
29.0
|
|
|
|
6.8
|
|
|
|
87.9
|
|
Operating profit
|
|
$
|
729.8
|
|
|
$
|
768.9
|
|
|
$
|
1,355.6
|
|
|
$
|
1,414.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16) New Accounting Pronouncements
In the first quarter of fiscal 2018, we adopted new requirements for the accounting and presentation of stock-based payments. The adoption of this guidance
resulted in the prospective recognition of realized windfall and shortfall tax benefits related to the exercise or vesting of stock-based awards in our Consolidated Statements of Earnings instead of additional
paid-in
capital within our Consolidated Balance Sheets. We recognized a windfall tax benefit in income tax expense in our Consolidated Statements of Earnings of $2.5 million in the second quarter of
fiscal 2018 and $20.2 million in the
six-month
period ended November 26, 2017. We retrospectively adopted the guidance related to reclassification of realized windfall tax benefits in our
Consolidated Statements of Cash Flows. This resulted in reclassifications of $20.2 million and $59.7 million of cash provided by financing activities to operating activities for the
six-month
periods
ended November 26, 2017 and November 27, 2016, respectively. Additionally, we retrospectively adopted the guidance related to reclassification of employee tax withholdings in our Consolidated Statements of Cash Flows. This resulted in
reclassifications of $21.4 million and $31.4 million of cash used by operating activities to financing activities for the
six-month
periods ended November 26, 2017 and November 27, 2016,
respectively. Stock-based compensation expense continues to reflect estimated forfeitures.
In the first quarter of fiscal 2018, we adopted new accounting
requirements which permit reporting entities to measure a goodwill impairment loss by the amount by which a reporting units carrying value exceeds the reporting units fair value. Previously, goodwill impairment losses were required to be
measured by determining the implied fair value of goodwill. Our annual goodwill impairment test was performed as of the first day of the second quarter of fiscal 2018 and the adoption of this guidance did not impact our results of operations or
financial position.
23
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
INTRODUCTION
This Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the
MD&A included in our Annual Report on Form
10-K
for the fiscal year ended May 28, 2017 for important background regarding, among other things, our key business drivers. Significant trademarks and
service marks used in our business are set forth in
italics
herein. Certain terms used throughout this report are defined in the Glossary section below.
CONSOLIDATED RESULTS OF OPERATIONS
Second Quarter
Results
In the second quarter of fiscal 2018, net sales increased 2 percent compared to the same period last year, driven by favorable foreign
currency exchange and favorable net price realization and mix. Increased contributions from volume growth in the North America Retail, Convenience Stores & Foodservice and Europe & Australia segments were partially offset by lower
contributions from volume growth in the Asia & Latin America segment. In the second quarter, increased sales from innovation, higher brand-building investment, and more effective merchandising contributed to organic net sales growth of
1 percent and market share gains in the majority of our key global platforms. Operating profit margin of 17.4 percent was down 130 basis points from
year-ago
levels primarily driven by lower segment
operating profit results and lower
mark-to-market
valuation of certain commodity positions, partially offset by a decrease in restructuring expenses. Adjusted operating
profit margin decreased 220 basis points to 17.4 percent, primarily driven by higher input costs including currency-driven inflation on imported products in certain markets, unfavorable trade expense phasing and higher media and advertising
expense, partially offset by benefits from cost savings initiatives. Diluted earnings per share of $0.74 decreased 8 percent compared to the second quarter of fiscal 2017 and adjusted diluted earnings per share of $0.82, which excludes certain
items affecting comparability, on a constant-currency basis decreased 5 percent compared to the second quarter last year (see the
Non-GAAP
Measures section below for a description of our use
of measures not defined by GAAP).
A summary of our consolidated financial results for the second quarter of fiscal 2018 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended Nov. 26, 2017
|
|
In millions, except
per share
|
|
|
Quarter Ended
Nov. 26, 2017 vs.
Nov. 27, 2016
|
|
|
Percent of Net
Sales
|
|
|
Constant-
Currency
Growth (a)
|
|
Net sales
|
|
$
|
4,198.7
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
729.8
|
|
|
|
(5
|
)%
|
|
|
17.4
|
%
|
|
|
|
|
Net earnings attributable to General Mills
|
|
|
430.5
|
|
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.74
|
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic net sales growth rate (a)
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Total segment operating profit (a)
|
|
|
773.0
|
|
|
|
(7
|
)%
|
|
|
|
|
|
|
(8
|
)%
|
Adjusted operating profit margin (a)
|
|
|
|
|
|
|
|
|
|
|
17.4
|
%
|
|
|
|
|
Diluted earnings per share,
excluding certain items affecting comparability (a)
|
|
$
|
0.82
|
|
|
|
(4
|
)%
|
|
|
|
|
|
|
(5
|
)%
|
|
|
(a)
|
See the
Non-GAAP
Measures section below for our use of measures not defined by GAAP.
|
Consolidated
net
sales
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Nov. 26,
2017
|
|
|
Nov. 26, 2017 vs
Nov. 27, 2016
|
|
|
Nov. 27,
2016
|
|
Net sales (in millions)
|
|
$
|
4,198.7
|
|
|
|
2
|
%
|
|
$
|
4,112.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
1
|
pt
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
1
|
pt
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
24
The 2 percent increase in net sales in the second quarter of fiscal 2018 was primarily driven by favorable
foreign currency exchange and favorable net price realization and mix. All four segments contributed to the increase in net sales in the second quarter of fiscal 2018 compared to the same period last year.
Organic net sales increased 1 percent in the second quarter of fiscal 2018 primarily driven by favorable organic net price realization and mix. To
improve comparability of results from period to period, organic net sales exclude the impacts of foreign currency exchange rate fluctuations, as well as acquisitions, divestitures, and a 53
rd
week
of results, when applicable.
Components of organic net sales growth are shown in the following table:
|
|
|
|
|
Quarter Ended Nov. 26, 2017 vs.
Quarter Ended Nov. 27, 2016
|
|
|
|
Contributions from organic volume growth (a)
|
|
|
Flat
|
|
Organic net price realization and mix
|
|
|
1
|
pt
|
Organic net sales growth
|
|
|
1
|
pt
|
Foreign currency exchange
|
|
|
1
|
pt
|
Acquisitions and divestitures
|
|
|
Flat
|
|
Net sales growth
|
|
|
2
|
pts
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Cost
of
sales
increased $163 million from the second quarter of fiscal 2017 to $2,756 million. The increase included a $148 million increase attributable to product rate and mix and a $9 million increase attributable to higher volume. We
recorded a $4 million net decrease in cost of sales related to the
mark-to-market
valuation of certain commodity positions and grain inventories in the second
quarter of fiscal 2018 compared to a net decrease of $29 million in the second quarter of fiscal 2017. We recorded $1 million of restructuring charges in cost of sales in the second quarter of fiscal 2018 compared to $13 million in
the same period last year. We also recorded $4 million of restructuring initiative project-related costs in the second quarter of fiscal 2018 compared to $11 million in the same period last year (please refer to Note 3 to the Consolidated
Financial Statements in Part I, Item 1 of this report).
Selling,
general,
and
administrative
(SG&A)
expenses
increased $4 million to $712 million in the second quarter of fiscal 2018 compared to the same period in fiscal 2017. The increase in SG&A expenses primarily reflects a 7 percentage point increase in media and
advertising expense partially offset by savings from cost management initiatives. SG&A expenses as a percent of net sales in the second quarter of fiscal 2018 decreased 30 basis points compared with the second quarter of fiscal 2017.
Divestiture
Loss
totaled $14 million from the sale of our Martel, Ohio manufacturing facility during the second quarter of fiscal 2017.
Restructuring,
impairment,
and
other
exit
costs
totaled $2 million in the second quarter of fiscal 2018
compared to $29 million in the same period last year.
Total charges associated with our current restructuring initiatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
In Millions
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
|
|
Charge
|
|
|
Cash
|
|
|
Charge
|
|
|
Cash
|
|
Global reorganization
|
|
$
|
0.6
|
|
|
$
|
11.1
|
|
|
$
|
|
|
|
$
|
|
|
Closure of Melbourne, Australia plant
|
|
|
2.8
|
|
|
|
2.6
|
|
|
|
12.0
|
|
|
|
|
|
Restructuring of certain international product lines
|
|
|
|
|
|
|
|
|
|
|
6.9
|
|
|
|
7.1
|
|
Closure of Vineland, New Jersey plant
|
|
|
(1.3
|
)
|
|
|
(9.1
|
)
|
|
|
7.0
|
|
|
|
1.2
|
|
Project Compass
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
3.7
|
|
Project Century
|
|
|
0.1
|
|
|
|
(5.0
|
)
|
|
|
15.9
|
|
|
|
13.0
|
|
Project Catalyst
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
Combination of certain operational facilities
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
1.5
|
|
Total restructuring charges (a)
|
|
|
2.2
|
|
|
|
0.4
|
|
|
|
41.8
|
|
|
|
27.4
|
|
Project-related costs
|
|
|
4.2
|
|
|
|
2.3
|
|
|
|
11.1
|
|
|
|
11.9
|
|
Restructuring charges and project-related
costs
|
|
$
|
6.4
|
|
|
$
|
2.7
|
|
|
$
|
52.9
|
|
|
$
|
39.3
|
|
|
|
(a)
|
Includes $0.6 million of restructuring charges recorded in cost of sales in the second quarter of fiscal 2018 and $12.8 million in the second quarter of fiscal 2017.
|
For further information on these restructuring initiatives, please refer to Note 3 to the Consolidated Financial Statements in Part 1, Item 1 of this
report.
25
Interest,
net
for the second quarter of fiscal 2018 totaled $75 million, down $1 million
from fiscal 2017, driven primarily by lower rates and changes in the mix of debt, partially offset by higher average debt balances.
The
effective
tax
rate
for the second quarter of fiscal 2018 was 35.9 percent compared to 32.8 percent for the second quarter of fiscal 2017. The 3.1 percentage point increase was primarily due to a $42 million prior year adjustment
recorded in the second quarter of fiscal 2018 (see Note 1 to the Consolidated Financial Statements in Part 1, Item 1 of this report), partially offset by favorable impacts from certain changes in French tax law and the prospective adoption of the
new accounting standard related to windfall tax benefits from stock-based payments (see Note 16 to the Consolidated Financial Statements in Part 1, Item 1 of this report). Our effective tax rate excluding certain items affecting comparability was
29.3 percent in the quarter ended November 26, 2017 compared to 32.4 percent in the same period last year (see the
Non-GAAP
Measures section below for a description of our use of
measures not defined by GAAP).
The United States Congress is currently working on enacting a tax reform bill, which would result in significant changes
to the U.S. tax system. We expect that if a bill is enacted, it could have a material impact on our Consolidated Financial Statements in future periods. We continue to monitor developments and assess the impact to General Mills.
After-tax
earnings
from
joint
ventures
decreased $6 million to
$24 million for the second quarter of fiscal 2018 compared to the same period last fiscal year, primarily driven by lower volume and higher input costs for Cereal Partners Worldwide (CPW) and unfavorable foreign currency exchange and
unfavorable product mix for
Häagen-Dazs
Japan, Inc. (HDJ). On a constant-currency basis,
after-tax
earnings from joint ventures decreased 19 percent (see the
Non-GAAP
Measures section below for a description of our use of measures not defined by GAAP). The components of our joint ventures net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
Quarter Ended Nov. 26, 2017 vs.
Quarter Ended Nov. 27, 2016
|
|
CPW
|
|
|
HDJ
|
|
Contributions from volume growth (a)
|
|
|
(2
|
)pts
|
|
|
(1
|
)pt
|
Net price realization and mix
|
|
|
Flat
|
|
|
|
(2
|
)pts
|
Foreign currency exchange
|
|
|
4
|
pts
|
|
|
(7
|
)pts
|
Net sales growth
|
|
|
2
|
pts
|
|
|
(10
|
)pts
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The change in net sales for each joint
venture on a constant-currency basis is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended Nov. 26, 2017
|
|
|
|
Percentage Change in Joint
Venture Net Sales as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in Joint
Venture Net Sales on Constant-
Currency Basis
|
|
CPW
|
|
|
2
|
%
|
|
|
4
|
pts
|
|
|
(2
|
)%
|
HDJ
|
|
|
(10
|
)%
|
|
|
(7
|
)pts
|
|
|
(3
|
)%
|
Joint Ventures
|
|
|
(1
|
)%
|
|
|
1
|
pt
|
|
|
(2
|
)%
|
|
|
Average
diluted
shares
outstanding
decreased by 19 million in the second quarter of fiscal
2018 from the same period a year ago due to the impact of share repurchases, partially offset by option exercises.
26
Six-Month
Results
In the
six-month
period ended November 26, 2017, net sales declined 1 percent, primarily driven by declining
contributions from volume growth in the North America Retail and Asia & Latin America segments partially offset by increasing contributions from volume growth in the Convenience Stores & Foodservice segment. Increased sales from
innovation, higher brand-building investment, and more effective merchandising contributed to an improvement in organic net sales trends versus the same period a year ago as well as market share gains in the majority of our key global platforms.
Operating profit margin of 17.0 percent was down 60 basis points from
year-ago
levels primarily driven by lower segment operating profit results and lower
mark-to-market
valuation of certain commodity positions, partially offset by a decrease in restructuring expenses. Adjusted operating profit margin decreased 220 basis points to 17.2 percent, primarily
driven by higher input costs including currency-driven inflation on imported products in certain markets, and unfavorable trade expense phasing. Diluted earnings per share of $1.43 decreased 3 percent compared to the
six-month
period ended November 27, 2016, and adjusted diluted earnings per share, which excludes certain items affecting comparability, on a constant-currency basis decreased 7 percent compared to the
same period a year ago (see the
Non-GAAP
Measures section below for a description of our use of measures not defined by GAAP).
A summary of our consolidated financial results for the
six-month
period ended November 26, 2017, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended Nov. 26, 2017
|
|
In millions, except
per share
|
|
|
Six-Month
Period Ended
Nov. 26, 2017
vs. Nov. 27,
2016
|
|
|
Percent of Net
Sales
|
|
|
Constant-
Currency
Growth (a)
|
|
Net sales
|
|
$
|
7,967.9
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
1,355.6
|
|
|
|
(4
|
)%
|
|
|
17.0
|
%
|
|
|
|
|
Net earnings attributable to General Mills
|
|
|
835.2
|
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.43
|
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic net sales growth rate (a)
|
|
|
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Total segment operating profit (a)
|
|
|
1,437.1
|
|
|
|
(11
|
)%
|
|
|
|
|
|
|
(12
|
)%
|
Adjusted operating profit margin (a)
|
|
|
|
|
|
|
|
|
|
|
17.2
|
%
|
|
|
|
|
Diluted earnings per share,
excluding certain items affecting comparability (a)
|
|
$
|
1.53
|
|
|
|
(6
|
)%
|
|
|
|
|
|
|
(7
|
)%
|
|
|
(a)
|
See the
Non-GAAP
Measures section below for our use of measures not defined by GAAP.
|
Consolidated
net
sales
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended
|
|
|
|
Nov. 26,
2017
|
|
|
Nov. 26, 2017 vs
Nov. 27, 2016
|
|
|
Nov. 27,
2016
|
|
Net sales (in millions)
|
|
$
|
7,967.9
|
|
|
|
(1
|
)%
|
|
$
|
8,020.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(1
|
)pt
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 1 percent decline in net sales
for the
six-month
period ended November 26, 2017 primarily reflects lower organic net sales.
Organic net
sales declined 1 percent in the
six-month
period ended November 26, 2017, driven by declining contributions from organic volume growth in the North America Retail and Asia & Latin America
segments partially offset by increasing contributions from organic volume growth in the Convenience Stores & Foodservice segment. To improve comparability of results from period to period, organic net sales exclude the impacts of foreign
currency exchange rate fluctuations, as well as acquisitions, divestitures, and a 53rd week of results, when applicable.
27
Components of organic net sales growth are shown in the following table:
|
|
|
|
|
Six-Month Period Ended Nov. 26, 2017 vs.
Six-Month Period Ended Nov. 27, 2016
|
|
|
|
Contributions from organic volume growth (a)
|
|
|
(1
|
)pt
|
Organic net price realization and mix
|
|
|
Flat
|
|
Organic net sales growth
|
|
|
(1
|
)pt
|
Foreign currency exchange
|
|
|
Flat
|
|
Acquisitions and divestitures
|
|
|
Flat
|
|
Net sales growth
|
|
|
(1
|
)pt
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Cost
of
sales
increased $131 million from the
six-month
period ended November 27, 2016, to $5,215 million. The increase included a $240 increase attributable to product rate and mix partially offset by an
$82 million decrease attributable to lower volume. We recorded $13 million of restructuring charges in cost of sales in the
six-month
period ended November 26, 2017, compared to $26 million
in the same period last year. We also recorded $5 million of restructuring initiative project-related costs in the
six-month
period ended November 26, 2017, compared to $25 million in the same
period last year (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report). We recorded a $6 million net decrease in cost of sales related to the
mark-to-market
valuation of certain commodity positions and grain inventories in the
six-month
period ended November 26, 2017, compared to a net decrease of
$12 million in the
six-month
period ended November 27, 2016.
SG&A
expenses
decreased
$29 million to $1,391 million in the
six-month
period ended November 26, 2017, compared to the same period in fiscal 2017. The decrease in SG&A expenses primarily reflects savings from cost
management initiatives partially offset by a 4 percentage point increase in media and advertising expense. SG&A expenses as a percent of net sales in the
six-month
period ended November 26, 2017
decreased 30 basis points compared with the same period of fiscal 2017.
Divestiture
loss
totaled $14 million from the sale of our
Martel, Ohio manufacturing facility during the second quarter of fiscal 2017.
Restructuring,
impairment,
and
other
exit
costs
totaled $7 million in the
six-month
period ended November 26, 2017, compared to $88 million in the same period last year.
Total charges associated with our restructuring initiatives consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended
|
|
|
Fiscal 2017, 2016 and
2015
|
|
|
Estimated
|
|
|
|
|
In Millions
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
|
Total
|
|
|
Future
|
|
|
Total
|
|
|
|
|
|
|
Charge
|
|
|
Cash
|
|
|
Charge
|
|
|
Cash
|
|
|
Charge
|
|
|
Cash
|
|
|
Charge
|
|
|
Cash
|
|
|
Charge
|
|
|
Cash
|
|
|
Savings (b)
|
|
Global reorganization
|
|
$
|
1.4
|
|
|
$
|
26.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
72.1
|
|
|
$
|
20.0
|
|
|
$
|
2
|
|
|
$
|
29
|
|
|
$
|
76
|
|
|
$
|
76
|
|
|
|
|
|
Closure of Melbourne, Australia plant
|
|
|
4.9
|
|
|
|
3.4
|
|
|
|
12.0
|
|
|
|
|
|
|
|
21.9
|
|
|
|
1.6
|
|
|
|
7
|
|
|
|
(2
|
)
|
|
|
34
|
|
|
|
3
|
|
|
|
|
|
Restructuring of certain international product lines
|
|
|
|
|
|
|
|
|
|
|
43.3
|
|
|
|
10.4
|
|
|
|
45.1
|
|
|
|
10.3
|
|
|
|
(3
|
)
|
|
|
(10
|
)
|
|
|
42
|
|
|
|
|
|
|
|
|
|
Closure of Vineland, New Jersey plant
|
|
|
12.1
|
|
|
|
(3.1
|
)
|
|
|
27.9
|
|
|
|
1.2
|
|
|
|
41.4
|
|
|
|
7.3
|
|
|
|
1
|
|
|
|
7
|
|
|
|
54
|
|
|
|
11
|
|
|
|
|
|
Project Compass
|
|
|
(0.2
|
)
|
|
|
3.0
|
|
|
|
1.0
|
|
|
|
8.0
|
|
|
|
54.3
|
|
|
|
48.9
|
|
|
|
|
|
|
|
2
|
|
|
|
54
|
|
|
|
54
|
|
|
|
|
|
Project Century
|
|
|
1.5
|
|
|
|
(3.4
|
)
|
|
|
30.1
|
|
|
|
20.6
|
|
|
|
408.4
|
|
|
|
95.5
|
|
|
|
4
|
|
|
|
51
|
|
|
|
414
|
|
|
|
143
|
|
|
|
|
|
Project Catalyst
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
140.9
|
|
|
|
94.1
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
94
|
|
|
|
|
|
Combination of certain operational facilities
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
2.6
|
|
|
|
13.3
|
|
|
|
16.3
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
15
|
|
|
|
14
|
|
|
|
|
|
Total restructuring charges (a)
|
|
|
19.7
|
|
|
|
27.1
|
|
|
|
114.3
|
|
|
|
43.3
|
|
|
|
797.4
|
|
|
|
294.0
|
|
|
|
13
|
|
|
|
74
|
|
|
|
830
|
|
|
|
395
|
|
|
|
|
|
Project-related costs
|
|
|
5.4
|
|
|
|
5.0
|
|
|
|
24.9
|
|
|
|
28.6
|
|
|
|
114.6
|
|
|
|
111.1
|
|
|
|
8
|
|
|
|
14
|
|
|
|
128
|
|
|
|
130
|
|
|
|
|
|
Restructuring charges and project-related costs
|
|
$
|
25.1
|
|
|
$
|
32.1
|
|
|
$
|
139.2
|
|
|
$
|
71.9
|
|
|
$
|
912.0
|
|
|
$
|
405.1
|
|
|
$
|
21
|
|
|
$
|
88
|
|
|
$
|
958
|
|
|
$
|
525
|
|
|
$
|
700
|
|
(a)
|
Includes $12.9 million of restructuring charges recorded in cost of sales during fiscal 2018 and $26.4 million in fiscal 2017.
|
(b)
|
Cumulative annual savings versus fiscal 2015 base targeted by fiscal 2018. Includes savings from SG&A cost reduction projects.
|
For further information on these restructuring initiatives, please refer to Note 3 to the Consolidated Financial Statements in Part 1, Item 1 of this
report.
Interest,
net
for the
six-month
period ended November 26, 2017, decreased
$2 million to $147 million compared to the same period of fiscal 2017, primarily driven by lower rates and changes in the mix of debt, partially offset by higher average debt balances.
28
The
effective
tax
rate
for the
six-month
period
ended November 26, 2017, was 33.4 percent compared to 31.9 percent for the
six-month
period ended November 27, 2016. The 1.5 percentage point increase was primarily due to a
$42 million prior year adjustment recorded in the second quarter of fiscal 2018 (see Note 1 to the Consolidated Financial Statements in Part 1, Item 1 of this report), partially offset by the prospective adoption of the new accounting standard
related to windfall tax benefits from stock-based payments (see Note 16 to the Consolidated Financial Statements in Part 1, Item 1 of this report). Our effective tax rate excluding certain items affecting comparability was 29.9 percent in the
six-month
period ended November 26, 2017, compared to 31.9 percent in the same period last year (see the
Non-GAAP
Measures section below for a
description of our use of measures not defined by GAAP).
The United States Congress is currently working on enacting a tax reform bill, which would
result in significant changes to the U.S. tax system. We expect that if a bill is enacted, it could have a material impact on our Consolidated Financial Statements in future periods. We continue to monitor developments and assess the impact to
General Mills.
After-tax
earnings
from
joint
ventures
decreased
$6 million to $48 million for the
six-month
period ended November 26, 2017, compared to the same period in fiscal 2017, primarily driven by higher input costs partially offset by favorable
foreign currency exchange for CPW, and unfavorable foreign currency exchange and higher input costs partially offset by favorable product mix for HDJ. On a constant-currency basis,
after-tax
earnings from
joint ventures decreased 11 percent (see the
Non-GAAP
Measures section below for a description of our use of measures not defined by GAAP). The components of our joint ventures net
sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
Six-month Period Ended November 26, 2017 vs.
Six-month Period Ended November 27, 2016
|
|
CPW
|
|
|
HDJ
|
|
Contributions from volume growth (a)
|
|
|
Flat
|
|
|
|
5
|
pts
|
Net price realization and mix
|
|
|
Flat
|
|
|
|
(1
|
)pt
|
Foreign currency exchange
|
|
|
3
|
pts
|
|
|
(7
|
)pts
|
Net sales growth
|
|
|
3
|
pts
|
|
|
(3
|
)pts
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The change in net sales for each joint
venture on a constant-currency basis is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended November 26, 2017
|
|
|
|
Percentage Change in Joint
Venture Net Sales as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in Joint
Venture Net Sales on Constant-
Currency Basis
|
|
CPW
|
|
|
3
|
%
|
|
|
3
|
pts
|
|
|
Flat
|
|
HDJ
|
|
|
(3
|
)%
|
|
|
(7
|
)pts
|
|
|
4
|
%
|
Joint Ventures
|
|
|
2
|
%
|
|
|
1
|
pt
|
|
|
1
|
%
|
Average
diluted
shares
outstanding
decreased by 22 million in the
six-month
period ended November 26, 2017, compared to the same period a year ago due to the impact of share repurchases, partially offset by option exercises.
29
SEGMENT OPERATING RESULTS
In the third quarter of fiscal 2017, we announced a new global organization structure to streamline our leadership, enhance global scale, and drive improved
operational agility to maximize our growth capabilities. As a result of this global reorganization, beginning in the third quarter of fiscal 2017, we are reporting results for our four operating segments as follows: North America Retail; Convenience
Stores & Foodservice; Europe & Australia; and Asia & Latin America. We have restated our net sales by segment and segment operating profit amounts to reflect our new operating segments. These segment changes had no effect
on previously reported consolidated net sales, operating profit, net earnings attributable to General Mills, or earnings per share.
Our North America
Retail operating segment consists of our former U.S. Retail operating units and our Canada region. Within our North America Retail operating segment, our former U.S. Meals operating unit and U.S. Baking operating unit have been combined into one
operating unit: U.S. Meals & Baking. Our Europe & Australia operating segment consists of our former Europe region. Our Asia & Latin America operating segment consists of our former Asia/Pacific and Latin America regions.
Our Convenience Stores & Foodservice operating segment was unchanged. For further information on our operating segments, please refer to Note 15 to the Consolidated Financial Statements in Part 1, Item 1 of this report.
North America Retail Segment Results
North America
Retail net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month Period Ended
|
|
|
|
Nov. 26,
2017
|
|
|
Nov. 26, 2017 vs
Nov. 27, 2016
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 26, 2017 vs
Nov. 27, 2016
|
|
|
Nov. 27,
2016
|
|
Net sales (in millions)
|
|
$
|
2,771.8
|
|
|
|
1
|
%
|
|
$
|
2,748.8
|
|
|
$
|
5,210.0
|
|
|
|
(2
|
)%
|
|
$
|
5,305.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
1
|
pt
|
|
|
|
|
|
|
|
|
|
|
(1
|
)pt
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
(1
|
)pt
|
|
|
|
|
|
|
|
|
|
|
(1
|
)pt
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
1
|
pt
|
|
|
|
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 1 percent increase in North
America Retail net sales in the second quarter of fiscal 2018 was driven by growth in the U.S. Cereal, Canada and U.S. Snacks operating units partially offset by declines in the U.S. Yogurt and U.S. Meals & Baking operating units.
The 2 percent decrease in net sales for the
six-month
period ended November 26, 2017, was driven by declines
in the U.S. Yogurt and U.S. Meals & Baking operating units partially offset by growth in the Canada and U.S. Snacks operating units.
The
components of North America Retail organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month Period Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 26, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
1
|
pt
|
|
|
(1
|
)pt
|
Organic net price realization and mix
|
|
|
(1
|
)pt
|
|
|
(1
|
)pt
|
Organic net sales growth
|
|
|
Flat
|
|
|
|
(2
|
)pts
|
Foreign currency exchange
|
|
|
1
|
pt
|
|
|
Flat
|
|
Net sales growth
|
|
|
1
|
pt
|
|
|
(2
|
)pts
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
North America Retail organic net sales
were flat in the three-month period ended November 26, 2017, compared to the same period in fiscal 2017.
North America Retail organic net sales
decreased 2 percentage points in the
six-month
period ended November 26, 2017, compared to the same period in fiscal 2017, driven primarily by volume declines in the U.S. Yogurt operating unit partially
offset by increases in the U.S. Snacks and U.S. Cereal operating units, and increased trade expense.
30
North America Retail net sales percentage change by operating unit are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month
Period Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 26, 2017
|
|
U.S. Cereal
|
|
|
7
|
%
|
|
|
Flat
|
|
Canada (a)
|
|
|
7
|
|
|
|
3
|
|
U.S. Snacks
|
|
|
5
|
|
|
|
1
|
|
U.S. Meals & Baking
|
|
|
(2
|
)
|
|
|
(1
|
)
|
U.S. Yogurt
|
|
|
(11
|
)
|
|
|
(17
|
)
|
Total
|
|
|
1
|
%
|
|
|
(2
|
)%
|
|
|
(a)
|
On a constant currency basis, Canada net sales increased 1 percent for the quarter ended November 26, 2017 and decreased 1 percent for the
six-month
period ended
November 26, 2017. See the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP.
|
Segment operating profit decreased 4 percent to $623 million in the second quarter of fiscal 2018 compared to $651 million in the same period
of fiscal 2017, driven primarily by unfavorable trade expense phasing and higher input costs. Segment operating profit decreased 5 percent on a constant-currency basis in the second quarter of fiscal 2018 compared to the second quarter of
fiscal 2017 (see the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP).
Segment operating profit decreased 10 percent to $1,156 million in the
six-months
ended November 26,
2017, compared to $1,279 million in the same period of fiscal 2017, driven primarily by lower net sales, including unfavorable trade expense phasing and higher input costs. Segment operating profit decreased 10 percent on a
constant-currency basis in the first six months of fiscal 2018 compared to the first six months of fiscal 2017 (see the
Non-GAAP
Measures section below for our use of this measure not defined by
GAAP).
Convenience Stores & Foodservice Segment Results
Convenience Stores & Foodservice net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month
Period Ended
|
|
|
|
Nov. 26,
2017
|
|
|
Nov. 26, 2017 vs
Nov. 27, 2016
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 26, 2017 vs
Nov. 27, 2016
|
|
|
Nov. 27,
2016
|
|
Net sales (in millions)
|
|
$
|
512.2
|
|
|
|
5
|
%
|
|
$
|
487.5
|
|
|
$
|
959.3
|
|
|
|
3
|
%
|
|
$
|
933.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
3
|
pts
|
|
|
|
|
|
|
|
|
|
|
2
|
pts
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
2
|
pts
|
|
|
|
|
|
|
|
|
|
|
1
|
pt
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Convenience Stores &
Foodservice net sales increased 5 percent for the second quarter of fiscal 2018, reflecting higher net sales across Focus 6 categories and benefits from market index pricing on bakery flour.
Convenience Stores & Foodservice net sales increased 3 percent for the
six-month
period ended
November 26, 2017, reflecting higher net sales across Focus 6 categories and benefits from market index pricing on bakery flour.
The components of
Convenience Stores & Foodservice organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month Period
Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 26, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
3
|
pts
|
|
|
2
|
pts
|
Organic net price realization and mix
|
|
|
2
|
pts
|
|
|
1
|
pt
|
Organic net sales growth
|
|
|
5
|
pts
|
|
|
3
|
pts
|
Net sales growth
|
|
|
5
|
pts
|
|
|
3
|
pts
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Segment operating profit declined
2 percent to $106 million in the second quarter of fiscal 2018 compared to $109 million in the second quarter of fiscal 2017, primarily driven by higher input costs, partially offset by higher net sales.
31
Segment operating profit decreased 5 percent to $191 million for the
six-month
period ended November 26, 2017, compared to $202 million in the same period of fiscal 2017, primarily driven by higher input costs, partially offset by higher net sales.
Europe & Australia Segment Results
Europe & Australia net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month Period
Ended
|
|
|
|
Nov. 26,
2017
|
|
|
Nov. 26, 2017 vs.
Nov. 27, 2016
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 26, 2017 vs.
Nov. 27, 2016
|
|
|
Nov. 27,
2016
|
|
Net sales (in millions)
|
|
$
|
466.7
|
|
|
|
7
|
%
|
|
$
|
435.1
|
|
|
$
|
958.6
|
|
|
|
5
|
%
|
|
$
|
913.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
1
|
pt
|
|
|
|
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
|
|
|
|
|
|
2
|
pts
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
6
|
pts
|
|
|
|
|
|
|
|
|
|
|
3
|
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 7 percent increase in
Europe & Australia net sales in the second quarter of fiscal 2018 was driven by favorable foreign currency exchange and higher net sales in the U.K. market.
The 5 percent increase in Europe & Australia net sales in the
six-month
period ended November 26,
2017, was driven by favorable foreign currency exchange and higher net sales in the U.K. market.
The components of Europe & Australia organic
net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month Period
Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 26, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
1
|
pt
|
|
|
Flat
|
|
Organic net price realization and mix
|
|
|
Flat
|
|
|
|
2
|
pts
|
Organic net sales growth
|
|
|
1
|
pt
|
|
|
2
|
pts
|
Foreign currency exchange
|
|
|
6
|
pts
|
|
|
3
|
pts
|
Net sales growth
|
|
|
7
|
pts
|
|
|
5
|
pts
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 1 percent increase in
Europe & Australia organic net sales growth in the second quarter of fiscal 2018 was driven by favorable contributions from organic volume growth.
The 2 percent increase in Europe & Australia organic net sales growth in the
six-month
period ended
November 26, 2017 was driven by favorable organic net price realization and mix.
Segment operating profit decreased 35 percent to
$27 million in the second quarter of fiscal 2018 compared to $41 million in the same period of fiscal 2017 primarily driven by input cost inflation, including currency-driven inflation on imported products in certain markets.
Europe & Australia segment operating profit decreased 40 percent on a constant-currency basis in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017 (see the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP).
Segment operating
profit decreased 32 percent to $58 million in the
six-month
period ended November 26, 2017, compared to $85 million in the same period of fiscal 2017 primarily driven by input cost
inflation, including currency-driven inflation on imported products in certain markets. Europe & Australia segment operating profit decreased 35 percent on a constant-currency basis in the
six-month
period ended November 26, 2017, compared to the same period of fiscal 2017 (see the
Non-GAAP
Measures section below for our use of this
measure not defined by GAAP).
32
Asia & Latin America Segment Results
Asia & Latin America net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month Period
Ended
|
|
|
|
Nov. 26,
2017
|
|
|
Nov. 26, 2017 vs.
Nov. 27, 2016
|
|
|
Nov. 27,
2016
|
|
|
Nov. 26,
2017
|
|
|
Nov. 26, 2017 vs.
Nov. 27, 2016
|
|
|
Nov. 27,
2016
|
|
Net sales (in millions)
|
|
$
|
448.0
|
|
|
|
2
|
%
|
|
$
|
440.7
|
|
|
$
|
840.0
|
|
|
|
(3
|
)%
|
|
$
|
866.9
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(7
|
)pts
|
|
|
|
|
|
|
|
|
|
|
(12
|
)pts
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
7
|
pts
|
|
|
|
|
|
|
|
|
|
|
8
|
pts
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
2
|
pts
|
|
|
|
|
|
|
|
|
|
|
1
|
pt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Asia & Latin America net sales
increased 2 percent in the second quarter of fiscal 2018 compared to the same period in the prior year, with higher net sales across Asia markets partially offset by lower net sales across Latin America markets.
Asia & Latin America net sales declined 3 percent in the
six-month
period ended November 26, 2017,
compared to the same period of fiscal 2017, which reflects lower net sales in Latin America markets due to the shift in reporting period in fiscal 2017 and challenges related to an enterprise reporting system implementation at our General Mills
Brasil Alimentos Ltda subsidiary, partially offset by higher net sales in Asia markets.
The components of Asia & Latin America organic net sales
growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month Period
Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 26, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
(7
|
)pts
|
|
|
(12
|
)pts
|
Organic net price realization and mix
|
|
|
7
|
pts
|
|
|
8
|
pts
|
Organic net sales growth
|
|
|
Flat
|
|
|
|
(4
|
)pts
|
Foreign currency exchange
|
|
|
2
|
pts
|
|
|
1
|
pt
|
Net sales growth
|
|
|
2
|
pts
|
|
|
(3
|
)pts
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Asia & Latin America organic
net sales were flat for the quarter ended November 26, 2017, reflecting a 7 percent decrease in contributions from organic volume growth offset by a 7 percent increase in organic net price realization and mix.
The 4 percent decrease in Asia & Latin America organic net sales for the
six-month
period ended
November 26, 2017, was driven by a 12 percent decrease in contributions from organic volume growth, partially offset by an 8 percent increase in organic net price realization and mix.
Segment operating profit decreased 42 percent to $17 million in the second quarter of fiscal 2018 compared to $29 million in the same period of
fiscal 2017 primarily driven by input cost inflation, including currency driven inflation on imported products in certain markets, and an increase in media and advertising expense. Asia & Latin America segment operating profit decreased
46 percent on a constant-currency basis in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017 (see the
Non-GAAP
Measures section below for our use of this measure
not defined by GAAP).
Segment operating profit decreased 37 percent to $32 million in the
six-month
period ended November 26, 2017, compared to $51 million in the same period of fiscal 2017 primarily driven by input cost inflation, including currency driven inflation on imported products in certain markets. Asia & Latin America
segment operating profit decreased 40 percent on a constant-currency basis in the first six months of fiscal 2018 compared to the first six months of fiscal 2017 (see the
Non-GAAP
Measures
section below for our use of this measure not defined by GAAP).
33
UNALLOCATED CORPORATE ITEMS
Unallocated corporate expense totaled $42 million in the second quarter of fiscal 2018 compared to $19 million in the same period in fiscal 2017. In
the second quarter of fiscal 2018, we recorded $1 million of restructuring charges and $4 million of restructuring initiative project-related costs in cost of sales compared to $13 million of restructuring charges and $11 million
of restructuring initiative project-related costs in cost of sales in the same period last year. In addition, we recorded a $4 million net decrease in expense related to the
mark-to-market
valuation of certain commodity positions and grain inventories in the second quarter of fiscal 2018 compared to a $29 million net decrease in expense
in the same period last year.
Unallocated corporate expense totaled $75 million in the
six-month
period
ended November 26, 2017, compared to $101 million in the same period last year. In the
six-month
period ended November 26, 2017, we recorded $13 million of restructuring charges and
$5 million of restructuring initiative project-related costs in cost of sales compared to $26 million of restructuring charges and $25 million of restructuring initiative project-related costs in cost of sales in the same period last
year. In addition, we recorded a $6 million net decrease in expense related to the
mark-to-market
valuation of certain commodity positions and grain inventories in
the
six-month
period ended November 26, 2017, compared to a $12 million net decrease in expense in the same period a year ago.
LIQUIDITY
During the
six-month
period ended November 26, 2017, cash provided by operations was $1,567 million compared to $1,079 million in the same period last year. The $488 million increase is primarily
driven by a $703 million change in current assets and liabilities. The $703 million change in current assets and liabilities is primarily due to changes in the timing of accounts payable, including the impact of extended payment terms, and
changes in other current liabilities, which were largely driven by changes in trade and incentive accruals.
Cash used by investing activities during the
six-month
period ended November 26, 2017, was $271 million, compared to cash used by investing activities of $280 million in the same period in fiscal 2017. Investments of $260 million in land,
buildings and equipment in the
six-month
period ended November 26, 2017, decreased $58 million compared to the same period a year ago. We received proceeds of $18 million related to the sale of
our Martel, Ohio facility in the second quarter of fiscal 2017. In addition, we received the final payment of $13 million from Sodiaal International (Sodiaal) in the first six months of fiscal 2017 to fully repay the exchangeable note we
purchased in fiscal 2012.
Cash used by financing activities during the
six-month
period ended November 26,
2017, was $1,131 million compared to $720 million in the same period last year. We had $53 million of net debt issuances in the first six months of fiscal 2018 compared to $1,164 million of net debt issuances in the same period a
year ago. We paid $600 million in cash to repurchase common stock and paid $565 million of dividends in the first
six-months
of fiscal 2018 compared to $1,350 million and $576 million,
respectively, in the same period last year.
As of November 26, 2017, we had $898 million of cash and cash equivalents held in foreign
jurisdictions which will be used to fund foreign operations and potential acquisitions. There is currently no need to repatriate these funds in order to meet domestic funding obligations or scheduled cash distributions. If we choose to repatriate
historical earnings from foreign jurisdictions, we intend to do so only in a
tax-neutral
manner.
CAPITAL
RESOURCES
Our capital structure was as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Nov. 26,
2017
|
|
|
May 28,
2017
|
|
Notes payable
|
|
$
|
1,298.0
|
|
|
$
|
1,234.1
|
|
Current portion of long-term debt
|
|
|
200.5
|
|
|
|
604.7
|
|
Long-term debt
|
|
|
8,228.3
|
|
|
|
7,642.9
|
|
Total debt
|
|
|
9,726.8
|
|
|
|
9,481.7
|
|
Redeemable interest
|
|
|
793.4
|
|
|
|
910.9
|
|
Noncontrolling interests
|
|
|
359.0
|
|
|
|
357.6
|
|
Stockholders equity
|
|
|
4,230.7
|
|
|
|
4,327.9
|
|
Total capital
|
|
$
|
15,109.9
|
|
|
$
|
15,078.1
|
|
|
|
To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding notes payable. Commercial
paper is a continuing source of short-term financing. We have commercial paper programs available to us in the United States and Europe. We also have committed, uncommitted, and asset-backed credit lines that support our foreign operations.
34
The following table details the
fee-paid
committed and uncommitted credit
lines we had available as of November 26, 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
|
|
|
|
0.2
|
|
Total committed and uncommitted credit facilities
|
|
$
|
3.4
|
|
|
$
|
0.3
|
|
|
|
The third-party holder of the General Mills Cereals, LLC (GMC) Class A Interests receives quarterly preferred
distributions from available net income based on the application of a floating preferred return rate to the holders capital account balance established in the most recent
mark-to-market
valuation (currently $252 million). On June 1, 2015, the floating preferred return rate on GMCs Class A Interests was reset to the sum of
three-month LIBOR plus 125 basis points. The preferred return rate is adjusted every three years through a negotiated agreement with the Class A Interest holder or through a remarketing auction.
We have an option to purchase the Class A Interests for consideration equal to the then current capital account value, plus any unpaid preferred return
and the prescribed make-whole amount. If we purchase these interests, any change in the third-party holders capital account from its original value will be charged directly to retained earnings and will increase or decrease the net earnings
used to calculate EPS in that period.
We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait Marques SNC
and Liberté Marques Sàrl. Sodiaal holds the remaining interests in each of these entities. We consolidate these entities into our consolidated financial statements. As of November 26, 2017, we recorded Sodiaals
50 percent interests in Yoplait Marques SNC and Liberté Marques Sàrl as noncontrolling interests, and the redemption value of its 49 percent interest in Yoplait SAS as a redeemable interest on our Consolidated Balance Sheets.
These euro- and Canadian dollar-denominated interests are reported in U.S. dollars on our Consolidated Balance Sheets. Sodiaal has the ability to put all or a portion of its redeemable interest to us at fair value once per year, up to three times
before December 2024. As of November 26, 2017, the redemption value of the redeemable interest was $793 million, which approximates its fair value.
Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of November 26, 2017,
we were in compliance with all of these covenants.
We have $200 million of long-term debt maturing in the next 12 months that is classified as
current, including $100 million of 6.39 percent fixed rate medium term notes due for remarketing in February 2018 and $100 million of 6.59 percent fixed rate medium term notes due for remarketing in October 2018. We believe that
cash flows from operations, together with available short- and long-term debt financing, will be adequate to meet our liquidity and capital needs for at least the next 12 months.
OFF-BALANCE
SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There were no material changes outside the ordinary course of our business in our contractual obligations or
off-balance
sheet arrangements during the second quarter of fiscal 2018.
SIGNIFICANT ACCOUNTING ESTIMATES
Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in our Annual Report on Form
10-K
for the fiscal year ended May 28, 2017. The accounting policies used in preparing our interim fiscal 2018 Consolidated Financial Statements are the same as those described in our Form
10-K
with the exception of the new accounting requirements adopted in the first quarter of fiscal 2018 for stock-based payments and goodwill impairment testing. See Note 16 to the Consolidated Financial Statements
in Part I, Item 1 of this report for additional information.
35
Our significant accounting estimates are those that have meaningful impact on the reporting of our financial
condition and results of operations. These estimates include our accounting for promotional expenditures, valuation of long-lived assets, intangible assets, redeemable interest, stock-based compensation, income taxes, and defined benefit pension,
other postretirement benefit, and postemployment benefit plans. The assumptions and methodologies used in the determination of those estimates as of November 26, 2017, are the same as those described in our Annual Report on Form
10-K
for the fiscal year ended May 28, 2017, with the exception of the new accounting requirements adopted in the first quarter of fiscal 2018 for stock-based payments and goodwill impairment testing. See Note
16 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information.
We tested our goodwill and indefinite-lived
intangible assets for impairment on our annual assessment date on the first day of the second quarter of fiscal 2018. As of our annual impairment assessment date, there was no impairment of our intangible assets as their related fair values were
substantially in excess of the carrying values, except for the
Yoki
and
Progresso
brand intangible assets and the Latin America reporting unit. The excess fair value as of the fiscal 2018 test date of the
Yoki
and
Progresso
brand intangible assets and the Latin America reporting unit was as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Carrying Value
of Intangible
Asset
|
|
|
Excess Fair Value as of
Fiscal 2018 Test Date
|
|
Yoki
|
|
$
|
138.2
|
|
|
|
1
|
%
|
Progresso
|
|
|
462.1
|
|
|
|
6
|
%
|
Latin America
|
|
$
|
272.0
|
|
|
|
21
|
%
|
|
|
In addition, while having significant coverage as of our fiscal 2018 assessment date, the
Food
Should
Taste
Good
and
Green
Giant
brand intangible assets and the U.S. Yogurt reporting unit had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In August
2017, the Financial Accounting Standards Board (FASB) issued new hedge accounting requirements. The new standard amends the hedge accounting recognition and presentation requirements to better align an entitys risk management activities and
financial reporting. The new standard also simplifies the application of hedge accounting guidance. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2018, and interim periods within
those annual periods, which for us is the first quarter of fiscal 2020. Early adoption is permitted. We are in the process of analyzing the impact of this standard on our results of operations and financial position.
In March 2017, the FASB issued new accounting requirements related to the presentation of net periodic defined benefit pension expense, net periodic
postretirement benefit expense, and net periodic postemployment benefit expense. The new standard requires the service cost component of net periodic benefit expense to be recorded in the same line items as other employee compensation costs within
our Consolidated Statements of Earnings. Other components of net periodic benefit expense must be presented separately outside of operating profit in our Consolidated Statements of Earnings. In addition, the new standard requires that only the
service cost component of net periodic benefit expense is eligible for capitalization. We recognized net periodic benefit expense of $56 million in fiscal 2017, $163 million in fiscal 2016, and $153 million in fiscal 2015 of which
$141 million, $161 million, and $167 million, respectively, related to service cost. These amounts may not necessarily be indicative of future amounts that may be recognized subsequent to the adoption of this new standard. The new
standard requires retrospective adoption of the presentation of net periodic benefit expense and prospective application of the capitalization of the service cost component. The requirements of the new standard are effective for annual reporting
periods beginning after December 15, 2017, and interim periods within those annual periods, which for us is the first quarter of fiscal 2019. Early adoption is permitted.
In October 2016, the FASB issued new accounting requirements related to the recognition of income taxes resulting from intra-entity transfers of assets other
than inventory. This will result in the recognition of the income tax consequences resulting from the intra-entity transfer of assets in our Consolidated Statements of Earnings in the period of the transfer. The requirements of the new standard are
effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods, which for us is the first quarter of fiscal 2019. Early adoption is permitted. Based on our assessment to date, we do not
expect this guidance to have a material impact on our results of operations or financial position.
36
In February 2016, the FASB issued new accounting requirements for accounting, presentation and classification of
leases. This will result in most leases being capitalized as a right of use asset with a related liability on our Consolidated Balance Sheets. The requirements of the new standard are effective for annual reporting periods beginning after
December 15, 2018, and interim periods within those annual periods, which for us is the first quarter of fiscal 2020. We are in the process of implementing lease accounting software and analyzing the impact of this standard on our results of
operations and financial position. Based on our assessment to date, we expect this guidance will have a material impact on our Consolidated Balance Sheets due to the amount of our lease commitments but we are unable to quantify the impact at this
time.
In May 2014, the FASB issued new accounting requirements for the recognition of revenue from contracts with customers. The requirements of the new
standard and its subsequent amendments are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods, which for us is the first quarter of fiscal 2019. We are in the process of
documenting the impact of the guidance on our current accounting policies and practices in order to identify material differences, if any, that would result from applying the new requirements to our revenue contracts. We continue to make progress on
our revenue recognition review and are also in the process of evaluating the impact, if any, on changes to our business processes, systems, and controls to support recognition and disclosure requirements under the new guidance. In addition, we
continue to assess our adoption approach. Based on our assessment to date, we do not expect this guidance to have a material impact on our results of operations or financial position.
NON-GAAP
MEASURES
We have included in this report measures of financial performance that are not defined by GAAP. We believe that these measures provide useful information to
investors and include these measures in other communications to investors.
For each of these
non-GAAP
financial
measures, we are providing below a reconciliation of the differences between the
non-GAAP
measure and the most directly comparable GAAP measure, an explanation of why we believe the
non-GAAP
measure provides useful information to investors, and any additional purposes for which we use the
non-GAAP
measure. These
non-GAAP
measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure.
Organic
Net Sales Growth Rates
This measure is used in reporting to our executive management and as a component of the Board of Directors
measurement of our performance for incentive compensation purposes. We provide organic net sales growth rates for our consolidated net sales and segment net sales. We believe that organic net sales growth rates provide useful information to
investors because they provide transparency to underlying performance in our net sales by excluding the effect that foreign currency exchange rate fluctuations, as well as acquisitions, divestitures, and a 53
rd
week, when applicable, have on
year-to-year
comparability. A reconciliation of these measures to reported net sales
growth rates, the relevant GAAP measures, are included in our Consolidated Results of Operations and Segment Operating Results discussions in the MD&A above.
Total Segment Operating Profit and Related Constant-Currency Growth Rate
This measure is used in reporting to our executive management and as a component of the Board of Directors measurement of our performance for incentive
compensation purposes. We believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate segment performance. A reconciliation of this measure to operating profit, the relevant GAAP
measure, is included in Note 15 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Constant-currency total segment operating
profit growth is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change in
Total Segment
Operating Profit as
Reported
|
|
|
Impact of
Foreign
Currency
Exchange
|
|
|
Percentage Change in
Total Segment Operating
Profit on a
Constant-
Currency Basis
|
|
Quarter Ended Nov. 26, 2017
|
|
|
(7
|
)%
|
|
|
1
|
pt
|
|
|
(8
|
)%
|
Six-Month
Period
Ended Nov. 26, 2017
|
|
|
(11
|
)%
|
|
|
1
|
pt
|
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Adjusted Operating Profit as a Percent of Net Sales (Adjusted Operating Profit Margin) Excluding Certain
Items Affecting Comparability
We believe this measure provides useful information to investors because it is important for assessing our operating
profit margin on a comparable basis. The adjustments are either items resulting from infrequently occurring events or items that, in managements judgment, significantly affect the year-over-year assessment of operating results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
In Millions
|
|
Value
|
|
|
Percent of Net
Sales
|
|
|
Value
|
|
|
Percent of
Net Sales
|
|
Operating profit as reported
|
|
$
|
729.8
|
|
|
|
17.4
|
%
|
|
$
|
768.9
|
|
|
|
18.7
|
%
|
Mark-to-market
effects (a)
|
|
|
(4.5
|
)
|
|
|
(0.1
|
)%
|
|
|
(29.1
|
)
|
|
|
(0.7
|
)%
|
Restructuring charges (b)
|
|
|
2.2
|
|
|
|
|
%
|
|
|
41.8
|
|
|
|
1.0
|
%
|
Project-related costs (b)
|
|
|
4.2
|
|
|
|
0.1
|
%
|
|
|
11.1
|
|
|
|
0.3
|
%
|
Divestiture loss (c)
|
|
|
|
|
|
|
|
%
|
|
|
13.5
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit
|
|
$
|
731.7
|
|
|
|
17.4
|
%
|
|
$
|
806.2
|
|
|
|
19.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month
Period Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
In Millions
|
|
Value
|
|
|
Percent of
Net Sales
|
|
|
Value
|
|
|
Percent of
Net Sales
|
|
Operating profit as reported
|
|
$
|
1,355.6
|
|
|
|
17.0
|
%
|
|
$
|
1,414.7
|
|
|
|
17.6
|
%
|
Mark-to-market
effects (a)
|
|
|
(6.3
|
)
|
|
|
(0.1
|
)%
|
|
|
(12.5
|
)
|
|
|
(0.1
|
)%
|
Restructuring costs (b)
|
|
|
19.7
|
|
|
|
0.2
|
%
|
|
|
114.3
|
|
|
|
1.4
|
%
|
Project-related costs (b)
|
|
|
5.4
|
|
|
|
0.1
|
%
|
|
|
24.9
|
|
|
|
0.3
|
%
|
Divestiture loss (c)
|
|
|
|
|
|
|
|
%
|
|
|
13.5
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit
|
|
$
|
1,374.4
|
|
|
|
17.2
|
%
|
|
$
|
1,554.9
|
|
|
|
19.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(b)
|
See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(c)
|
See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
38
Diluted EPS Excluding Certain Items Affecting Comparability and Related Constant-Currency Growth Rate
This measure is used in reporting to our executive management and as a component of the Board of Directors measurement of our performance
for incentive compensation purposes. We believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate earnings performance on a comparable year-over-year basis. The adjustments are
either items resulting from infrequently occurring events or items that, in managements judgment, significantly affect the year-over-year assessment of operating results.
The reconciliation of our GAAP measure, diluted EPS, to diluted EPS excluding certain items affecting comparability and the related constant-currency growth
rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month
Period Ended
|
|
Per Share Data
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Change
|
|
|
Nov. 26,
2017
|
|
|
Nov. 27,
2016
|
|
|
Change
|
|
Diluted earnings per share, as reported
|
|
$
|
0.74
|
|
|
$
|
0.80
|
|
|
|
(8
|
)%
|
|
$
|
1.43
|
|
|
$
|
1.47
|
|
|
|
(3
|
)%
|
Tax adjustment (a)
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
Mark-to-market
effects (b)
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
Divestiture loss (c)
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
Restructuring costs (d)
|
|
|
|
|
|
|
0.05
|
|
|
|
|
|
|
|
0.02
|
|
|
|
0.13
|
|
|
|
|
|
Project-related costs (d)
|
|
|
0.01
|
|
|
|
0.02
|
|
|
|
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share, excluding certain items affecting comparability
|
|
$
|
0.82
|
|
|
$
|
0.85
|
|
|
|
(4
|
)%
|
|
$
|
1.53
|
|
|
$
|
1.63
|
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange impact
|
|
|
|
|
|
|
|
|
|
|
1
|
pt
|
|
|
|
|
|
|
|
|
|
|
1
|
pt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share growth, excluding certain
items affecting comparability, on a constant-currency basis
|
|
|
|
|
|
|
|
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note 1 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(b)
|
See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(c)
|
See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(d)
|
See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
See our reconciliation
below of the effective income tax rate as reported to the effective income tax rate excluding certain items affecting comparability for the tax impact of each item affecting comparability.
Constant-Currency
After-tax
Earnings from Joint Ventures Growth Rates
We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our joint ventures by
excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year
comparability given volatility in foreign currency exchange markets.
After-tax
earnings from joint ventures growth rate on a constant-currency basis is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change in After-
tax Earnings from Joint
Ventures
as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in After-tax
Earnings from Joint Ventures
on Constant-Currency Basis
|
|
Quarter Ended Nov. 26, 2017
|
|
|
(20
|
)%
|
|
|
(1
|
)pt
|
|
|
(19
|
)%
|
Six-Month
Period
Ended Nov. 26, 2017
|
|
|
(12
|
)%
|
|
|
(1
|
)pt
|
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales Growth Rates for Our Canada Operating Unit on Constant-Currency Basis
We believe that this measure of our Canada operating unit net sales provides useful information to investors because it provides transparency to the underlying
performance for the Canada operating unit within our North America Retail segment by excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year
comparability given volatility in foreign currency exchange markets.
39
Net sales growth rates for our Canada operating unit on a constant-currency basis are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change in
Net Sales
as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in
Net Sales on Constant-
Currency
Basis
|
|
Quarter Ended Nov. 26, 2017
|
|
|
7
|
%
|
|
|
6
|
pts
|
|
|
1
|
%
|
Six-Month
Period
Ended Nov. 26, 2017
|
|
|
3
|
%
|
|
|
4
|
pts
|
|
|
(1
|
)%
|
|
|
Constant-Currency Segment Operating Profit Growth Rates
We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our segments by excluding
the effect that foreign currency exchange rate fluctuations have on
year-to-year
comparability given volatility in foreign currency exchange markets.
Our segments operating profit growth rates on a constant-currency basis are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended Nov. 26, 2017
|
|
|
|
|
|
Percentage Change in
Operating Profit
as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in Operating
Profit on Constant-Currency
Basis
|
|
North America Retail
|
|
|
|
|
(4
|
)%
|
|
|
1
|
pt
|
|
|
(5
|
)%
|
Europe & Australia
|
|
|
|
|
(35
|
)%
|
|
|
5
|
pts
|
|
|
(40
|
)%
|
Asia & Latin America
|
|
|
|
|
(42
|
)%
|
|
|
4
|
pts
|
|
|
(46
|
)%
|
|
|
|
|
|
|
|
|
|
Six-Month
Period Ended Nov. 26, 2017
|
|
|
|
|
|
Percentage Change in
Operating Profit
as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in Operating
Profit on Constant-Currency
Basis
|
|
North America Retail
|
|
|
|
|
(10
|
)%
|
|
|
Flat
|
|
|
|
(10
|
)%
|
Europe & Australia
|
|
|
|
|
(32
|
)%
|
|
|
3
|
pts
|
|
|
(35
|
)%
|
Asia & Latin America
|
|
|
|
|
(37
|
)%
|
|
|
3
|
pts
|
|
|
(40
|
)%
|
|
|
40
Effective Income Tax Rate Excluding Certain Items Affecting Comparability
We believe this measure provides useful information to investors because it is important for assessing the effective tax rate excluding certain items affecting
comparability and presents the income tax effects of certain items affecting comparability.
Effective income tax rates excluding certain items affecting
comparability are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six-Month Period Ended
|
|
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
|
Nov. 26, 2017
|
|
|
Nov. 27, 2016
|
|
In Millions (Except Per Share Data)
|
|
Pretax
Earnings
(a)
|
|
|
Income
Taxes
|
|
|
Pretax
Earnings (a)
|
|
|
Income
Taxes
|
|
|
Pretax
Earnings
(a)
|
|
|
Income
Taxes
|
|
|
Pretax
Earnings
(a)
|
|
|
Income
Taxes
|
|
As reported
|
|
$
|
654.9
|
|
|
$
|
234.9
|
|
|
$
|
693.4
|
|
|
$
|
227.4
|
|
|
$
|
1,208.3
|
|
|
$
|
403.4
|
|
|
$
|
1,265.3
|
|
|
$
|
404.0
|
|
Mark-to-market
effects (b)
|
|
|
(4.5
|
)
|
|
|
(1.6
|
)
|
|
|
(29.1
|
)
|
|
|
(10.7
|
)
|
|
|
(6.3
|
)
|
|
|
(2.3
|
)
|
|
|
(12.5
|
)
|
|
|
(4.6
|
)
|
Restructuring charges (c)
|
|
|
2.2
|
|
|
|
|
|
|
|
41.8
|
|
|
|
11.5
|
|
|
|
19.7
|
|
|
|
5.9
|
|
|
|
114.3
|
|
|
|
35.7
|
|
Project-related costs (c)
|
|
|
4.2
|
|
|
|
1.5
|
|
|
|
11.1
|
|
|
|
4.0
|
|
|
|
5.4
|
|
|
|
1.8
|
|
|
|
24.9
|
|
|
|
9.0
|
|
Divestiture loss (d)
|
|
|
|
|
|
|
|
|
|
|
13.5
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
13.5
|
|
|
|
4.3
|
|
Tax adjustment (e)
|
|
|
|
|
|
|
(42.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42.2
|
)
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$
|
656.8
|
|
|
$
|
192.6
|
|
|
$
|
730.7
|
|
|
$
|
236.5
|
|
|
$
|
1,227.1
|
|
|
$
|
366.6
|
|
|
$
|
1,405.5
|
|
|
$
|
448.4
|
|
Effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
35.9
|
%
|
|
|
|
|
|
|
32.8
|
%
|
|
|
|
|
|
|
33.4
|
%
|
|
|
|
|
|
|
31.9
|
%
|
As adjusted
|
|
|
|
|
|
|
29.3
|
%
|
|
|
|
|
|
|
32.4
|
%
|
|
|
|
|
|
|
29.9
|
%
|
|
|
|
|
|
|
31.9
|
%
|
Sum of adjustment to income taxes
|
|
|
|
|
|
$
|
(42.3
|
)
|
|
|
|
|
|
$
|
9.1
|
|
|
|
|
|
|
$
|
(36.8
|
)
|
|
|
|
|
|
$
|
44.4
|
|
Average number of common shares - diluted EPS
|
|
|
|
|
|
|
580.3
|
|
|
|
|
|
|
|
599.7
|
|
|
|
|
|
|
|
583.6
|
|
|
|
|
|
|
|
606.0
|
|
Impact of income tax adjustments on diluted EPS
excluding certain items affecting comparability
|
|
|
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
$
|
0.02
|
|
|
|
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Earnings before income taxes and
after-tax
earnings from joint ventures.
|
(b)
|
See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(c)
|
See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(d)
|
See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(e)
|
See Note 1 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
41
GLOSSARY
Accelerated
depreciation
associated
with
restructured
assets.
The increase in depreciation expense caused by updating
the salvage value and shortening the useful life of depreciable fixed assets to coincide with the end of production under an approved restructuring plan, but only if impairment is not present.
Adjusted
operating
profit
margin.
Operating profit adjusted for certain items affecting year-over-year comparability, divided by
net sales.
AOCI
. Accumulated other comprehensive income (loss).
Constant
currency.
Financial results translated to U.S. dollars using constant foreign currency exchange rates based on the rates in effect for
the comparable prior-year period. To present this information, current period results for entities reporting in currencies other than United States dollars are translated into United States dollars at the average exchange rates in effect during the
corresponding period of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year. Therefore, the foreign currency impact is equal to current year results in local currencies multiplied by the
change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.
Derivatives.
Financial instruments such as futures, swaps, options, and forward contracts that we use to manage our risk arising from changes in
commodity prices, interest rates, foreign exchange rates, and stock prices.
Euribor.
Euro Interbank Offered Rate.
Fair
value
hierarchy.
For purposes of fair value measurement, we categorize assets and liabilities into one of three levels based on the
assumptions (inputs) used in valuing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:
|
|
|
Level 1:
|
|
Unadjusted quoted prices in active markets for identical assets or liabilities.
|
|
|
Level 2:
|
|
Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
|
|
|
Level 3:
|
|
Unobservable inputs reflecting managements assumptions about the inputs used in pricing the asset or liability.
|
Fixed
charge
coverage
ratio.
The sum of earnings before income taxes and fixed charges
(before tax), divided by the sum of the fixed charges (before tax) and interest.
Focus
6
platforms.
The Focus 6 platforms for the
Convenience Stores & Foodservice segment consist of cereal, yogurt, snacks, frozen meals, biscuits, and baking mixes.
Foundation
businesses.
Foundation businesses consist primarily of refrigerated dough, desserts, and soup in our North America Retail segment and bakery flour and frozen dough products in our Convenience Stores & Foodservice segment, as well as
other product lines not included in Growth businesses.
Generally
Accepted
Accounting
Principles
(GAAP).
Guidelines,
procedures, and practices that we are required to use in recording and reporting accounting information in our financial statements.
Goodwill.
The
difference between the purchase price of acquired companies plus the fair value of any noncontrolling and redeemable interests and the related fair values of net assets acquired.
Growth
businesses.
Growth businesses include cereal, snack bars, the natural and organic portfolio, hot snacks, Mexican products, and
yogurt in our North America Retail segment; our Europe & Australia segment; our Asia & Latin America segment; and our Focus 6 platforms in our Convenience Stores & Foodservice segment.
Hedge
accounting.
Accounting for qualifying hedges that allows changes in a hedging instruments fair value to offset corresponding changes
in the hedged item in the same reporting period. Hedge accounting is permitted for certain hedging instruments and hedged items only if the hedging relationship is highly effective, and only prospectively from the date a hedging relationship is
formally documented.
42
Interest
bearing
instruments.
Notes payable, long-term debt, including current portion, cash
and cash equivalents, and certain interest bearing investments classified within prepaid expenses and other current assets and other assets.
LIBOR.
London Interbank Offered Rate.
Mark-to-market.
The act of determining a value for financial instruments, commodity contracts, and related assets or liabilities based on the current market price for that
item.
Net
mark-to-market
valuation
of
certain
commodity
positions.
Realized and unrealized gains and losses on derivative contracts that will be allocated to segment operating profit when the exposure we are hedging affects earnings.
Net
price
realization.
The impact of list and promoted price changes, net of trade and other price promotion costs.
Noncontrolling
interests.
Interests of subsidiaries held by third parties.
Notional
principal
amount.
The principal amount on which fixed-rate or floating-rate interest payments are calculated.
OCI.
Other Comprehensive Income.
Organic
net
sales
growth
. Net sales growth adjusted for foreign currency translation, as well as acquisitions, divestitures, and a 53
rd
week impact, when applicable.
Project-related
costs.
Costs incurred related to our restructuring initiatives not included in restructuring charges.
Redeemable
interest.
Interest of subsidiaries held by a third party that can be redeemed outside of our control and therefore cannot be
classified as a noncontrolling interest in equity.
Total
debt.
Notes payable and long-term debt, including current portion.
Translation
adjustments.
The impact of the conversion of our foreign affiliates financial statements to U.S. dollars for the purpose of
consolidating our financial statements.
43
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. We also may make written or oral forward-looking statements, including statements contained in our filings with the
Securities and Exchange Commission and in our reports to stockholders.
The words or phrases will likely result, are expected to,
will continue, is anticipated, estimate, plan, project, or similar expressions identify forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those currently anticipated or projected. We wish to caution you not to place undue reliance
on any such forward-looking statements.
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, we are identifying important factors that could affect our financial performance and could cause our actual results in future periods to differ materially from any current opinions or statements.
Our future results could be affected by a variety of factors, such as: competitive dynamics in the consumer foods industry and the markets for our products,
including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital;
product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets; changes in capital
structure; changes in the legal and regulatory environment, including tax reform legislation, labeling and advertising regulations, and litigation; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets,
or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for
our products; effectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; consolidation in
the retail environment; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging, and energy; disruptions or inefficiencies in the
supply chain; effectiveness of restructuring and cost saving initiatives; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates
used to determine plan liabilities; failure or breach of our information technology systems; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war.
You should also consider the risk factors that we identify in Item 1A of Part I of our Annual Report on Form
10-K
for the fiscal year ended May 28, 2017, which could also affect our future results.
We undertake no obligation to publicly revise any
forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events.