PART I. FINANCIAL INFORMATION
Item 1.
|
Financial Statements
|
Consolidated Statements of Earnings
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions, Except per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
|
|
|
|
|
Feb. 25, 2018
|
|
|
Feb. 26, 2017
|
|
|
Feb. 25, 2018
|
|
|
Feb. 26, 2017
|
|
Net sales
|
|
$
|
3,882.3
|
|
|
$
|
3,793.2
|
|
|
$
|
11,850.2
|
|
|
$
|
11,813.2
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,627.0
|
|
|
|
2,485.5
|
|
|
|
7,841.8
|
|
|
|
7,569.1
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
655.1
|
|
|
|
687.6
|
|
|
|
2,045.8
|
|
|
|
2,107.9
|
|
|
|
|
|
|
Divestiture loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13.5
|
|
|
|
|
|
|
Restructuring, impairment, and other exit costs
|
|
|
7.5
|
|
|
|
77.6
|
|
|
|
14.3
|
|
|
|
165.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
592.7
|
|
|
|
542.5
|
|
|
|
1,948.3
|
|
|
|
1,957.2
|
|
|
|
|
|
|
Interest, net
|
|
|
89.3
|
|
|
|
76.4
|
|
|
|
236.6
|
|
|
|
225.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and
after-tax
earnings from
joint ventures
|
|
|
503.4
|
|
|
|
466.1
|
|
|
|
1,711.7
|
|
|
|
1,731.4
|
|
|
|
|
|
|
Income taxes
|
|
|
(432.5
|
)
|
|
|
107.0
|
|
|
|
(29.1
|
)
|
|
|
511.0
|
|
|
|
|
|
|
After-tax
earnings from joint ventures
|
|
|
16.6
|
|
|
|
11.1
|
|
|
|
64.1
|
|
|
|
65.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to redeemable and noncontrolling interests
|
|
|
952.5
|
|
|
|
370.2
|
|
|
|
1,804.9
|
|
|
|
1,285.5
|
|
|
|
|
|
|
Net earnings attributable to redeemable and noncontrolling interests
|
|
|
11.1
|
|
|
|
12.4
|
|
|
|
28.3
|
|
|
|
36.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to General Mills
|
|
$
|
941.4
|
|
|
$
|
357.8
|
|
|
$
|
1,776.6
|
|
|
$
|
1,248.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
1.64
|
|
|
$
|
0.62
|
|
|
$
|
3.10
|
|
|
$
|
2.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - diluted
|
|
$
|
1.62
|
|
|
$
|
0.61
|
|
|
$
|
3.05
|
|
|
$
|
2.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.49
|
|
|
$
|
0.48
|
|
|
$
|
1.47
|
|
|
$
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
3
Consolidated Statements of Comprehensive Income
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
Net earnings, including earnings attributable to redeemable and noncontrolling interests
|
|
$
|
952.5
|
|
|
$
|
370.2
|
|
|
$
|
1,804.9
|
|
|
$
|
1,285.5
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
23.5
|
|
|
|
113.7
|
|
|
|
43.0
|
|
|
|
88.4
|
|
|
|
|
|
|
Other fair value changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
1.4
|
|
|
|
0.8
|
|
Hedge derivatives
|
|
|
(6.7
|
)
|
|
|
(4.9
|
)
|
|
|
(15.6
|
)
|
|
|
42.4
|
|
|
|
|
|
|
Reclassification to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives
|
|
|
2.8
|
|
|
|
(8.7
|
)
|
|
|
3.4
|
|
|
|
(19.3
|
)
|
Amortization of losses and prior service costs
|
|
|
30.7
|
|
|
|
29.9
|
|
|
|
86.4
|
|
|
|
92.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax
|
|
|
50.9
|
|
|
|
130.5
|
|
|
|
118.6
|
|
|
|
204.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
1,003.4
|
|
|
|
500.7
|
|
|
|
1,923.5
|
|
|
|
1,490.1
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to redeemable and noncontrolling interests
|
|
|
40.7
|
|
|
|
16.4
|
|
|
|
125.5
|
|
|
|
(20.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to General Mills
|
|
$
|
962.7
|
|
|
$
|
484.3
|
|
|
$
|
1,798.0
|
|
|
$
|
1,510.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
Consolidated Balance Sheets
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except Par Value)
|
|
|
|
|
|
|
|
|
|
|
Feb. 25,
2018
|
|
|
May 28,
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
953.1
|
|
|
$
|
766.1
|
|
Receivables
|
|
|
1,496.5
|
|
|
|
1,430.1
|
|
Inventories
|
|
|
1,452.5
|
|
|
|
1,483.6
|
|
Prepaid expenses and other current assets
|
|
|
375.0
|
|
|
|
381.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,277.1
|
|
|
|
4,061.4
|
|
|
|
|
Land, buildings, and equipment
|
|
|
3,626.2
|
|
|
|
3,687.7
|
|
Goodwill
|
|
|
8,867.3
|
|
|
|
8,747.2
|
|
Other intangible assets
|
|
|
4,604.1
|
|
|
|
4,530.4
|
|
Other assets
|
|
|
865.9
|
|
|
|
785.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
22,240.6
|
|
|
$
|
21,812.6
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,505.7
|
|
|
$
|
2,119.8
|
|
Current portion of long-term debt
|
|
|
1,250.5
|
|
|
|
604.7
|
|
Notes payable
|
|
|
1,210.8
|
|
|
|
1,234.1
|
|
Other current liabilities
|
|
|
1,242.6
|
|
|
|
1,372.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,209.6
|
|
|
|
5,330.8
|
|
|
|
|
Long-term debt
|
|
|
7,163.6
|
|
|
|
7,642.9
|
|
Deferred income taxes
|
|
|
1,233.9
|
|
|
|
1,719.4
|
|
Other liabilities
|
|
|
1,481.3
|
|
|
|
1,523.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
16,088.4
|
|
|
|
16,216.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable interest
|
|
|
817.5
|
|
|
|
910.9
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, 754.6 shares issued, $0.10 par value
|
|
|
75.5
|
|
|
|
75.5
|
|
Additional
paid-in
capital
|
|
|
1,235.0
|
|
|
|
1,120.9
|
|
Retained earnings
|
|
|
14,398.4
|
|
|
|
13,138.9
|
|
Common stock in treasury, at cost, shares of 184.5 and 177.7
|
|
|
(8,190.8
|
)
|
|
|
(7,762.9
|
)
|
Accumulated other comprehensive loss
|
|
|
(2,552.5
|
)
|
|
|
(2,244.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
4,965.6
|
|
|
|
4,327.9
|
|
|
|
|
Noncontrolling interests
|
|
|
369.1
|
|
|
|
357.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
5,334.7
|
|
|
|
4,685.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
22,240.6
|
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,776.6
|
|
|
|
21.4
|
|
|
|
41.2
|
|
|
|
1,839.2
|
|
|
|
84.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($1.47 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(846.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(846.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.9
|
)
|
|
|
(601.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(601.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation plans (includes income tax benefits of $26.8)
|
|
|
|
|
|
|
|
|
|
|
(49.1
|
)
|
|
|
4.1
|
|
|
|
173.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned compensation related to restricted stock unit awards
|
|
|
|
|
|
|
|
|
|
|
(58.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned compensation
|
|
|
|
|
|
|
|
|
|
|
62.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in redemption value of redeemable interest
|
|
|
|
|
|
|
|
|
|
|
159.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159.1
|
|
|
|
(159.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling and redeemable interest holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29.7
|
)
|
|
|
(29.7
|
)
|
|
|
(18.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of certain income tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329.4
|
|
|
|
(329.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of Feb. 25, 2018
|
|
|
754.6
|
|
|
$
|
75.5
|
|
|
$
|
1,235.0
|
|
|
|
(184.5
|
)
|
|
$
|
(8,190.8
|
)
|
|
$
|
14,398.4
|
|
|
$
|
(2,552.5
|
)
|
|
$
|
369.1
|
|
|
$
|
5,334.7
|
|
|
$
|
817.5
|
|
See accompanying notes to consolidated financial statements.
6
Consolidated Statements of Cash Flows
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions)
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended
|
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
Cash Flows - Operating Activities
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to redeemable and noncontrolling interests
|
|
$
|
1,804.9
|
|
|
$
|
1,285.5
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
434.7
|
|
|
|
448.3
|
|
After-tax
earnings from joint ventures
|
|
|
(64.1
|
)
|
|
|
(65.1
|
)
|
Distributions of earnings from joint ventures
|
|
|
60.6
|
|
|
|
43.7
|
|
Stock-based compensation
|
|
|
62.8
|
|
|
|
76.4
|
|
Deferred income taxes
|
|
|
(489.1
|
)
|
|
|
140.1
|
|
Pension and other postretirement benefit plan contributions
|
|
|
(20.3
|
)
|
|
|
(34.0
|
)
|
Pension and other postretirement benefit plan costs
|
|
|
3.5
|
|
|
|
26.9
|
|
Divestiture loss
|
|
|
-
|
|
|
|
13.5
|
|
Restructuring, impairment, and other exit costs
|
|
|
(12.3
|
)
|
|
|
141.1
|
|
Changes in current assets and liabilities
|
|
|
394.9
|
|
|
|
(368.8
|
)
|
Other, net
|
|
|
(40.3
|
)
|
|
|
(48.6
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,135.3
|
|
|
|
1,659.0
|
|
|
|
|
|
|
|
|
|
|
Cash Flows - Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of land, buildings, and equipment
|
|
|
(397.9
|
)
|
|
|
(475.2
|
)
|
Investments in affiliates, net
|
|
|
(15.2
|
)
|
|
|
4.8
|
|
Proceeds from disposal of land, buildings, and equipment
|
|
|
0.9
|
|
|
|
1.2
|
|
Proceeds from divestiture
|
|
|
-
|
|
|
|
17.5
|
|
Exchangeable note
|
|
|
-
|
|
|
|
13.0
|
|
Other, net
|
|
|
(12.7
|
)
|
|
|
14.7
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(424.9
|
)
|
|
|
(424.0
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows - Financing Activities
|
|
|
|
|
|
|
|
|
Change in notes payable
|
|
|
(37.3
|
)
|
|
|
1,681.3
|
|
Issuance of long-term debt
|
|
|
500.0
|
|
|
|
750.0
|
|
Payment of long-term debt
|
|
|
(600.0
|
)
|
|
|
(1,003.0
|
)
|
Proceeds from common stock issued on exercised options
|
|
|
91.4
|
|
|
|
90.5
|
|
Purchases of common stock for treasury
|
|
|
(601.2
|
)
|
|
|
(1,650.9
|
)
|
Dividends paid
|
|
|
(846.5
|
)
|
|
|
(856.3
|
)
|
Distributions to noncontrolling and redeemable interest holders
|
|
|
(48.3
|
)
|
|
|
(59.5
|
)
|
Other, net
|
|
|
(27.8
|
)
|
|
|
(35.2
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(1,569.7
|
)
|
|
|
(1,083.1
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
46.3
|
|
|
|
(16.5
|
)
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
187.0
|
|
|
|
135.4
|
|
Cash and cash equivalents - beginning of year
|
|
|
766.1
|
|
|
|
763.7
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of period
|
|
$
|
953.1
|
|
|
$
|
899.1
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from changes in current assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
(25.5
|
)
|
|
$
|
(75.1
|
)
|
Inventories
|
|
|
56.6
|
|
|
|
(42.1
|
)
|
Prepaid expenses and other current assets
|
|
|
13.3
|
|
|
|
53.3
|
|
Accounts payable
|
|
|
413.0
|
|
|
|
(100.4
|
)
|
Other current liabilities
|
|
|
(62.5
|
)
|
|
|
(204.5
|
)
|
|
|
|
|
|
|
|
|
|
Changes in current assets and liabilities
|
|
$
|
394.9
|
|
|
$
|
(368.8
|
)
|
|
|
|
|
|
|
|
|
|
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 (U.S. GAAP) 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 February 25, 2018 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 and new accounting requirements adopted in the third quarter of fiscal 2018 for the reclassification of certain income tax effects from accumulated other comprehensive income to retained
earnings. See Note 15 and Note 17 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 nine-month period ended February 25, 2018, we recorded an adjustment related to a prior year which increased income tax expense
and total liabilities by $40.5 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) Acquisition and Divestiture
During the third
quarter of fiscal 2018, we entered into a definitive agreement and plan of merger with Blue Buffalo Pet Products, Inc. (Blue Buffalo), a publicly held pet food company, pursuant to which a subsidiary of General Mills will merge into Blue
Buffalo, with Blue Buffalo surviving the merger as a wholly owned subsidiary of General Mills. Equity holders of Blue Buffalo will receive $40.00 per share in cash, representing an enterprise value of approximately $8.0 billion in addition to
the assumption of approximately $394 million of outstanding debt which will be repaid upon transaction close. We expect to finance the transaction with a combination of debt, cash on hand and approximately $1.0 billion in equity. The
transaction, which has been approved by the Boards of Directors of General Mills and Blue Buffalo, is subject to regulatory approvals and other customary closing conditions, and is expected to close by the end of fiscal 2018. Invus, LP and founding
Bishop family shareholders, representing more than 50 percent of Blue Buffalos outstanding shares, have delivered written consents approving the transaction and no other approval of Blue Buffalos Board of Directors or shareholders
is required to complete the transaction. We expect to report the consolidated results of Blue Buffalo as a segment in future periods.
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
|
|
|
|
Feb. 25, 2018
|
|
|
|
|
|
Feb. 26, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
Severance
|
|
|
Asset
Write-offs
|
|
|
Accelerated
Depreciation
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
Severance
|
|
|
Asset
Write-offs
|
|
|
Accelerated
Depreciation
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global reorganization
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
67.4
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5.7
|
|
|
$
|
73.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure of Melbourne, Australia plant
|
|
|
-
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
3.0
|
|
|
|
3.1
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5.6
|
|
|
|
0.1
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring of certain international product lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
0.6
|
|
|
|
1.6
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure of Vineland, New Jersey plant
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
-
|
|
|
|
0.4
|
|
|
|
7.1
|
|
|
|
0.2
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project Compass
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Project Century
|
|
|
-
|
|
|
|
0.7
|
|
|
|
-
|
|
|
|
2.9
|
|
|
|
3.6
|
|
|
|
|
|
|
|
0.2
|
|
|
|
1.7
|
|
|
|
3.4
|
|
|
|
1.8
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combination of certain operational facilities
|
|
|
0.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.7
|
|
|
$
|
0.7
|
|
|
$
|
0.1
|
|
|
$
|
6.1
|
|
|
$
|
7.6
|
|
|
|
|
|
|
$
|
66.3
|
|
|
$
|
3.7
|
|
|
$
|
16.1
|
|
|
$
|
7.9
|
|
|
$
|
94.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended
|
|
|
|
|
|
Nine-Month Period Ended
|
|
|
|
Feb. 25, 2018
|
|
|
|
|
|
Feb. 26, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
$
|
67.4
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5.7
|
|
|
$
|
73.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure of Melbourne, Australia plant
|
|
|
0.6
|
|
|
|
-
|
|
|
|
2.2
|
|
|
|
5.2
|
|
|
|
8.0
|
|
|
|
|
|
|
|
11.3
|
|
|
|
-
|
|
|
|
6.3
|
|
|
|
0.1
|
|
|
|
17.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring of certain international product lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
7.0
|
|
|
|
37.4
|
|
|
|
(0.3
|
)
|
|
|
1.5
|
|
|
|
45.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure of Vineland, New Jersey plant
|
|
|
(2.2
|
)
|
|
|
8.9
|
|
|
|
10.6
|
|
|
|
(5.0
|
)
|
|
|
12.3
|
|
|
|
|
|
|
|
12.3
|
|
|
|
5.4
|
|
|
|
16.1
|
|
|
|
1.8
|
|
|
|
35.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project Compass
|
|
|
(0.2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
-
|
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Project Century
|
|
|
0.1
|
|
|
|
6.4
|
|
|
|
-
|
|
|
|
(1.4
|
)
|
|
|
5.1
|
|
|
|
|
|
|
|
0.7
|
|
|
|
9.8
|
|
|
|
18.0
|
|
|
|
8.7
|
|
|
|
37.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combination of certain operational facilities
|
|
|
0.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(0.4
|
)
|
|
$
|
15.9
|
|
|
$
|
12.8
|
|
|
$
|
(1.0
|
)
|
|
$
|
27.3
|
|
|
|
|
|
|
$
|
96.8
|
|
|
$
|
52.6
|
|
|
$
|
40.3
|
|
|
$
|
18.6
|
|
|
$
|
208.3
|
|
|
|
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 have recorded
$1.4 million of restructuring charges in the nine-month period ended February 25, 2018 relating to these actions. We recorded $73.1 million of restructuring charges in the third quarter of fiscal 2017. We expect these actions to be
completed by the end of fiscal 2018.
In the second quarter of fiscal 2017, we notified the employees and their representatives of our
decision to close our pasta manufacturing facility in Melbourne, Australia in our Europe & Australia segment to improve our margin structure. This action will affect approximately 350 positions, and we expect to incur approximately
$34 million of net expenses relating to this action, of which approximately $3 million will be cash. We recorded $3.1 million of restructuring charges in the third quarter of fiscal 2018 and $8.0 million in the nine-month period
ended February 25, 2018 relating to this action. We recorded $5.7 million of restructuring charges in the third quarter of fiscal 2017 and $17.7 million in the nine-month period ended February 26, 2017. We expect this action to
be completed by the end of fiscal 2019.
In the first quarter of fiscal 2017, we announced a plan to restructure certain product lines in
our Asia & Latin America segment. To eliminate excess capacity, we closed our snacks manufacturing facility in Marília, Brazil and ceased production operations for meals and snacks at our facility in São Bernardo do Campo,
Brazil. We also ceased production of certain underperforming snack products at our facility in Nanjing, China. These and other actions affected 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, of which approximately $6 million will be cash. There have been no restructuring charges in fiscal 2018 relating to these
9
actions. We recorded $2.3 million of restructuring charges in the third quarter of fiscal 2017 and $45.6 million in the nine-month period ended February 26, 2017. We expect these
actions to be completed by the end of fiscal 2019.
In the first quarter of fiscal 2017, we approved a plan to close our Vineland, New
Jersey facility to eliminate excess soup capacity in our North America Retail segment. This action 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 $0.2 million of restructuring charges in the third quarter of fiscal 2018 and $12.3 million in the nine-month period ended February 25, 2018. We recorded $7.7 million of restructuring
charges in the third quarter of fiscal 2017 and $35.6 million in the nine-month period ended February 26, 2017. We expect this action to be completed by the end of fiscal 2018.
During the nine-month period ended February 25, 2018, we paid $39.6 million in cash relating to restructuring initiatives and
$67.1 million in the nine-month period ended February 26, 2017.
In addition to restructuring charges, we recorded
$3 million of project-related costs in cost of sales in the third quarter of fiscal 2018 and $8.4 million in the nine-month period ended February 25, 2018. We paid $8.0 million in cash in the nine-month period ended
February 25, 2018 for project-related costs and $40.2 million in the nine-month period ended February 26, 2017.
Restructuring charges and
project-related costs are recorded in our Consolidated Statements of Earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month Period Ended
|
|
In Millions
|
|
Feb. 25, 2018
|
|
|
Feb. 26, 2017
|
|
|
Feb. 25, 2018
|
|
|
Feb. 26, 2017
|
|
Cost of sales
|
|
$
|
0.1
|
|
|
$
|
16.4
|
|
|
$
|
13.0
|
|
|
$
|
42.8
|
|
Restructuring, impairment, and other exit costs
|
|
|
7.5
|
|
|
|
77.6
|
|
|
|
14.3
|
|
|
|
165.5
|
|
|
|
Total restructuring charges
|
|
|
7.6
|
|
|
|
94.0
|
|
|
|
27.3
|
|
|
|
208.3
|
|
|
|
Project-related costs classified in cost of sales
|
|
$
|
3.0
|
|
|
$
|
11.5
|
|
|
$
|
8.4
|
|
|
$
|
36.4
|
|
|
|
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
|
|
|
(1.8
|
)
|
|
|
0.2
|
|
|
|
(1.1
|
)
|
|
|
(2.7
|
)
|
Utilized in fiscal 2018
|
|
|
(43.0
|
)
|
|
|
(0.8
|
)
|
|
|
(0.9
|
)
|
|
|
(44.7
|
)
|
|
|
Reserve balance as of Feb. 25, 2018
|
|
$
|
37.0
|
|
|
$
|
0.1
|
|
|
$
|
0.5
|
|
|
$
|
37.6
|
|
|
|
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
|
|
Feb. 25,
2018
|
|
|
May 28,
2017
|
|
Goodwill
|
|
$
|
8,867.3
|
|
|
$
|
8,747.2
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
Brands and other indefinite-lived intangibles
|
|
|
4,222.2
|
|
|
|
4,161.1
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Franchise agreements, customer relationships,
and other finite-lived intangibles
|
|
|
570.0
|
|
|
|
524.8
|
|
Less accumulated amortization
|
|
|
(188.1
|
)
|
|
|
(155.5
|
)
|
Intangible assets subject to amortization, net
|
|
|
381.9
|
|
|
|
369.3
|
|
Other intangible assets
|
|
|
4,604.1
|
|
|
|
4,530.4
|
|
Total
|
|
$
|
13,471.4
|
|
|
$
|
13,277.6
|
|
|
|
Based on the carrying value of finite-lived intangible assets as of February 25, 2018, annual amortization expense for
each of the next five fiscal years is estimated to be approximately $28 million.
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
|
|
|
7.3
|
|
|
|
-
|
|
|
|
68.4
|
|
|
|
3.8
|
|
|
|
40.6
|
|
|
|
120.1
|
|
Balance as of Feb. 25, 2018
|
|
$
|
6,413.8
|
|
|
$
|
918.8
|
|
|
$
|
769.2
|
|
|
$
|
316.2
|
|
|
$
|
449.3
|
|
|
$
|
8,867.3
|
|
|
|
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
|
|
|
73.7
|
|
Balance as of Feb. 25, 2018
|
|
$
|
4,604.1
|
|
|
|
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
|
|
Feb. 25,
2018
|
|
|
May 28,
2017
|
|
Raw materials and packaging
|
|
$
|
392.3
|
|
|
$
|
395.4
|
|
Finished goods
|
|
|
1,169.8
|
|
|
|
1,224.3
|
|
Grain
|
|
|
101.6
|
|
|
|
73.0
|
|
Excess of FIFO over LIFO cost
|
|
|
(211.2
|
)
|
|
|
(209.1
|
)
|
Total
|
|
$
|
1,452.5
|
|
|
$
|
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 and nine-month periods ended February 25, 2018 and
February 26, 2017 included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
In Millions
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
Net gain (loss) on
mark-to-market
valuation of certain commodity positions
|
|
$
|
0.3
|
|
|
$
|
-
|
|
|
$
|
(8.1
|
)
|
|
$
|
(15.9
|
)
|
Net loss on commodity positions reclassified from
unallocated corporate items to segment operating profit
|
|
|
4.6
|
|
|
|
4.0
|
|
|
|
10.7
|
|
|
|
27.7
|
|
Net
mark-to-market
revaluation of certain grain inventories
|
|
|
(7.7
|
)
|
|
|
4.2
|
|
|
|
0.9
|
|
|
|
8.9
|
|
Net
mark-to-market
valuation of certain commodity positions
recognized in
unallocated corporate items
|
|
$
|
(2.8
|
)
|
|
$
|
8.2
|
|
|
$
|
3.5
|
|
|
$
|
20.7
|
|
As of February 25, 2018, the net notional value of commodity derivatives was $377.9 million, of
which $106.1 million related to energy inputs and $271.8 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 related to the planned acquisition of Blue Buffalo, in fiscal 2018, we entered into $3,500.0 million of treasury
locks due April 19, 2018, with an average fixed rate of 2.9 percent, of which $2,300.0 million were entered into in the third quarter of fiscal 2018. As of February 25, 2018, the net fair value of the treasury locks was a
liability of less than $1 million.
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 February 25, 2018, 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 February 25, 2018, $927.0 million of our total accounts payable were
payable to suppliers who utilize these third party services.
(7) Debt
The components of notes payable were as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Feb. 25,
2018
|
|
|
May 28,
2017
|
|
U.S. commercial paper
|
|
$
|
885.2
|
|
|
$
|
954.7
|
|
Financial institutions
|
|
|
325.6
|
|
|
|
279.4
|
|
Total
|
|
$
|
1,210.8
|
|
|
$
|
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.
13
In February 2018, we entered into a
fee-paid
commitment
letter with certain lenders, pursuant to which such lenders have committed to provide a
364-day
senior unsecured bridge term loan credit facility (the Bridge Facility) in an aggregate principal
amount of up to $8.5 billion to provide the financing for the planned acquisition of Blue Buffalo. To the extent we obtain funding for the acquisition by issuing debt or equity securities, the availability of the Bridge Facility will be
correspondingly reduced. The funding of the Bridge Facility is contingent on the satisfaction of certain customary conditions set forth in the commitment letter.
The following table details the
fee-paid
committed and uncommitted credit lines we had available as of
February 25, 2018:
|
|
|
|
|
|
|
|
|
In Billions
|
|
Facility
Amount
|
|
|
Borrowed
Amount
|
|
|
|
Credit facility expiring:
|
|
|
|
|
|
|
|
|
February 2019
|
|
$
|
8.5
|
|
|
$
|
-
|
|
May 2022
|
|
|
2.7
|
|
|
|
-
|
|
June 2019
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
Total committed credit facilities
|
|
|
11.4
|
|
|
|
0.2
|
|
Uncommitted credit facilities
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
|
|
|
Total committed and uncommitted credit facilities
|
|
$
|
11.9
|
|
|
$
|
0.4
|
|
|
|
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 February 25, 2018.
Long-Term Debt
The fair values and carrying amounts of long-term debt, including the current portion, were $8,512.6 million and $8,414.1 million,
respectively, as of February 25, 2018. 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 February 2018, we paid $113.8 million to repurchase $100.0 million of
our previously issued 6.39% medium term notes due 2023. We recorded the $13.8 million premium paid in the repurchase as interest expense.
In October 2017, we issued $500.0 million principal amount of 2.6 percent fixed-rate notes due October 12, 2022. Interest on
the notes is payable 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 February 25, 2018, 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 February 25, 2018, the redemption value of the euro-denominated redeemable interest was $817.5 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 $172.7 million for the nine-month period ended February 25, 2018 and $134.6 million for the nine-month period ended February 26, 2017.
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 February 25, 2018, 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
|
|
|
|
Feb. 25, 2018
|
|
|
Feb. 26, 2017
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
$
|
941.4
|
|
|
$
|
2.8
|
|
|
$
|
8.3
|
|
|
|
|
|
|
|
|
|
|
$
|
357.8
|
|
|
$
|
2.9
|
|
|
$
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
$
|
(6.9
|
)
|
|
$
|
-
|
|
|
|
(6.9
|
)
|
|
|
10.3
|
|
|
|
20.1
|
|
|
$
|
109.0
|
|
|
$
|
-
|
|
|
|
109.0
|
|
|
|
(0.5
|
)
|
|
|
5.2
|
|
Other fair value changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
0.8
|
|
|
|
(0.2
|
)
|
|
|
0.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
(0.2
|
)
|
|
|
0.5
|
|
|
|
-
|
|
|
|
-
|
|
Hedge derivatives
|
|
|
(7.2
|
)
|
|
|
1.2
|
|
|
|
(6.0
|
)
|
|
|
-
|
|
|
|
(0.7
|
)
|
|
|
(6.2
|
)
|
|
|
1.3
|
|
|
|
(4.9
|
)
|
|
|
-
|
|
|
|
-
|
|
Reclassification to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives (a)
|
|
|
3.9
|
|
|
|
(1.0
|
)
|
|
|
2.9
|
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
(9.8
|
)
|
|
|
1.8
|
|
|
|
(8.0
|
)
|
|
|
-
|
|
|
|
(0.7
|
)
|
Amortization of losses and prior service costs (b)
|
|
|
45.1
|
|
|
|
(14.4
|
)
|
|
|
30.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48.0
|
|
|
|
(18.1
|
)
|
|
|
29.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
35.7
|
|
|
$
|
(14.4
|
)
|
|
|
21.3
|
|
|
|
10.3
|
|
|
|
19.3
|
|
|
$
|
141.7
|
|
|
|
$ (15.2
|
)
|
|
|
126.5
|
|
|
|
(0.5
|
)
|
|
|
4.5
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
$
|
962.7
|
|
|
$
|
13.1
|
|
|
$
|
27.6
|
|
|
|
|
|
|
|
|
|
|
$
|
484.3
|
|
|
$
|
2.4
|
|
|
$
|
14.0
|
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended
|
|
|
Nine-Month Period Ended
|
|
|
|
Feb. 25, 2018
|
|
|
Feb. 26, 2017
|
|
|
|
General Mills
|
|
|
Noncontrolling
Interests
|
|
|
Redeemable
Interest
|
|
|
General Mills
|
|
|
Noncontrolling
Interests
|
|
|
Redeemable
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
|
Pretax
|
|
|
Tax
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to redeemable
and noncontrolling interests
|
|
|
|
|
|
|
|
|
|
$
|
1,776.6
|
|
|
$
|
8.8
|
|
|
$
|
19.5
|
|
|
|
|
|
|
|
|
|
|
$
|
1,248.6
|
|
|
$
|
10.7
|
|
|
$
|
26.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
$ (55.5
|
)
|
|
$
|
-
|
|
|
|
(55.5
|
)
|
|
|
32.4
|
|
|
|
66.1
|
|
|
$
|
146.0
|
|
|
$
|
-
|
|
|
|
146.0
|
|
|
|
(15.7
|
)
|
|
|
(41.9
|
)
|
Other fair value changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
2.1
|
|
|
|
(0.7
|
)
|
|
|
1.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1.2
|
|
|
|
(0.4
|
)
|
|
|
0.8
|
|
|
|
-
|
|
|
|
-
|
|
Hedge derivatives
|
|
|
(19.4
|
)
|
|
|
3.9
|
|
|
|
(15.5
|
)
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
52.5
|
|
|
|
(12.8
|
)
|
|
|
39.7
|
|
|
|
-
|
|
|
|
2.7
|
|
Reclassification to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives (a)
|
|
|
7.2
|
|
|
|
(2.6
|
)
|
|
|
4.6
|
|
|
|
-
|
|
|
|
(1.2
|
)
|
|
|
(18.4
|
)
|
|
|
1.4
|
|
|
|
(17.0
|
)
|
|
|
-
|
|
|
|
(2.3
|
)
|
Amortization of losses and prior service costs (b)
|
|
|
132.7
|
|
|
|
(46.3
|
)
|
|
|
86.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
148.8
|
|
|
|
(56.5
|
)
|
|
|
92.3
|
|
|
|
-
|
|
|
|
-
|
|
Other comprehensive income (loss)
|
|
$
|
67.1
|
|
|
|
$ (45.7
|
)
|
|
|
21.4
|
|
|
|
32.4
|
|
|
|
64.8
|
|
|
$
|
330.1
|
|
|
|
$ (68.3
|
)
|
|
|
261.8
|
|
|
|
(15.7
|
)
|
|
|
(41.5
|
)
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
1,798.0
|
|
|
|
$ 41.2
|
|
|
$
|
84.3
|
|
|
|
|
|
|
|
|
|
|
$
|
1,510.4
|
|
|
$
|
(5.0
|
)
|
|
|
$ (15.3
|
)
|
|
|
(a)
|
(Gain) loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.
|
(b)
|
Loss reclassified from AOCI into earnings is reported in SG&A expenses.
|
Accumulated other comprehensive
loss balances, net of tax effects, were as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Feb. 25,
2018
|
|
|
May 28,
2017
|
|
Foreign currency translation adjustments
|
|
$
|
(680.2
|
)
|
|
$
|
(624.7
|
)
|
Unrealized gain (loss) from:
|
|
|
|
|
|
|
|
|
Securities
|
|
|
7.3
|
|
|
|
4.6
|
|
Hedge derivatives
|
|
|
(11.0
|
)
|
|
|
1.5
|
|
Pension, other postretirement, and postemployment benefits:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
(1,886.8
|
)
|
|
|
(1,645.4
|
)
|
Prior service costs
|
|
|
18.2
|
|
|
|
19.5
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(2,552.5
|
)
|
|
$
|
(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 17 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Compensation expense related to stock-based payments recognized in the Consolidated Statements of Earnings was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
In Millions
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
Compensation expense related to stock-based payments
|
|
$
|
14.5
|
|
|
$
|
20.1
|
|
|
$
|
63.4
|
|
|
$
|
77.7
|
|
|
|
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 February 25,
2018, unrecognized compensation expense related to
non-vested
stock options, restricted stock units, and performance share units was $110.9 million. This expense will be recognized over 23 months, on
average.
Net cash proceeds from the exercise of stock options less shares used for withholding taxes and the intrinsic value of options
exercised were as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine-Month
Period Ended
|
|
In Millions
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
Net cash proceeds
|
|
$
|
91.4
|
|
|
$
|
90.5
|
|
Intrinsic value of options exercised
|
|
$
|
79.9
|
|
|
$
|
153.1
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period
Ended
|
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
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
|
|
|
(3,207.2
|
)
|
|
|
31.43
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(146.8
|
)
|
|
|
58.69
|
|
|
|
|
|
|
|
|
|
Outstanding as of Feb. 25, 2018
|
|
|
29,297.1
|
|
|
$
|
42.82
|
|
|
|
4.36
|
|
|
$
|
343.4
|
|
Exercisable as of Feb. 25, 2018
|
|
|
20,297.2
|
|
|
$
|
36.08
|
|
|
|
2.74
|
|
|
$
|
343.4
|
|
|
|
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
|
|
|
1,473.6
|
|
|
|
55.37
|
|
|
|
42.9
|
|
|
|
55.49
|
|
Vested
|
|
|
(1,738.9
|
)
|
|
|
50.53
|
|
|
|
(36.2
|
)
|
|
|
49.42
|
|
Forfeited
|
|
|
(415.9
|
)
|
|
|
62.63
|
|
|
|
(9.4
|
)
|
|
|
58.91
|
|
Non-vested
as of Feb. 25, 2018
|
|
|
3,810.0
|
|
|
$
|
57.62
|
|
|
|
120.6
|
|
|
$
|
58.31
|
|
|
|
The total grant date fair value of restricted stock unit awards that vested during the period follows:
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended
|
|
In Millions
|
|
Feb. 25, 2018
|
|
|
Feb. 26,
2017
|
|
Total grant date fair value
|
|
$
|
89.7
|
|
|
$
|
71.2
|
|
|
|
19
(11) Earnings Per Share
Basic and diluted earnings per share (EPS) were calculated using the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
In Millions, Except per Share Data
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
Net earnings attributable to General Mills
|
|
$
|
941.4
|
|
|
$
|
357.8
|
|
|
$
|
1,776.6
|
|
|
$
|
1,248.6
|
|
|
|
|
|
|
|
|
Average number of common shares - basic EPS
|
|
|
572.5
|
|
|
|
580.7
|
|
|
|
573.4
|
|
|
|
589.8
|
|
Incremental share effect from: (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
7.9
|
|
|
|
7.8
|
|
|
|
7.7
|
|
|
|
8.5
|
|
Restricted stock, restricted stock units, and
other
|
|
|
2.3
|
|
|
|
2.9
|
|
|
|
2.1
|
|
|
|
2.8
|
|
Average number of common shares - diluted EPS
|
|
|
582.7
|
|
|
|
591.4
|
|
|
|
583.2
|
|
|
|
601.1
|
|
|
|
Earnings per share - basic
|
|
$
|
1.64
|
|
|
$
|
0.62
|
|
|
$
|
3.10
|
|
|
$
|
2.12
|
|
Earnings per share - diluted
|
|
$
|
1.62
|
|
|
$
|
0.61
|
|
|
$
|
3.05
|
|
|
$
|
2.08
|
|
|
|
(a)
|
Incremental shares from stock options, restricted stock units, and performance share units are computed by the
treasury stock method. Stock options, restricted stock units, and performance share units excluded from our computation of diluted EPS because they were not dilutive were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
In Millions
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
Anti-dilutive stock options, restricted stock units, and performance share units
|
|
|
5.2
|
|
|
|
2.4
|
|
|
|
6.8
|
|
|
|
2.2
|
|
|
|
(12) Share Repurchases
Share repurchases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
|
|
|
In Millions
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
Shares of common stock
|
|
|
-
|
|
|
|
4.9
|
|
|
|
10.9
|
|
|
|
25.4
|
|
Aggregate purchase price
|
|
|
$0.7
|
|
|
|
$301.0
|
|
|
|
$601.2
|
|
|
|
$1,650.9
|
|
|
|
(13) Statements of Cash Flows
Our Consolidated Statements of Cash Flows include the following:
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period
Ended
|
|
In Millions
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
Net cash interest payments
|
|
$
|
237.9
|
|
|
$
|
263.8
|
|
Net income tax payments
|
|
$
|
424.3
|
|
|
$
|
394.3
|
|
|
|
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
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
|
Service cost
|
|
$
|
25.7
|
|
|
$
|
29.9
|
|
|
$
|
2.9
|
|
|
$
|
3.2
|
|
|
$
|
2.1
|
|
|
$
|
2.2
|
|
Interest cost
|
|
|
54.5
|
|
|
|
54.1
|
|
|
|
7.6
|
|
|
|
8.2
|
|
|
|
0.6
|
|
|
|
0.7
|
|
Expected return on plan assets
|
|
|
(120.1
|
)
|
|
|
(121.6
|
)
|
|
|
(13.0
|
)
|
|
|
(12.1
|
)
|
|
|
-
|
|
|
|
-
|
|
Amortization of losses
|
|
|
44.6
|
|
|
|
47.2
|
|
|
|
0.2
|
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
0.4
|
|
Amortization of prior service costs (credits)
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
(1.3
|
)
|
|
|
(1.5
|
)
|
|
|
0.2
|
|
|
|
0.2
|
|
Other adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.4
|
|
|
|
3.4
|
|
|
|
Net expense (income)
|
|
$
|
5.1
|
|
|
$
|
10.2
|
|
|
$
|
(3.6
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
3.5
|
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plans
|
|
|
Other Postretirement
Benefit Plans
|
|
|
Postemployment
Benefit Plans
|
|
|
|
Nine-Month
Period Ended
|
|
|
Nine-Month
Period Ended
|
|
|
Nine-Month
Period Ended
|
|
In Millions
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
|
Service cost
|
|
$
|
77.1
|
|
|
$
|
89.9
|
|
|
$
|
8.7
|
|
|
$
|
9.4
|
|
|
$
|
6.4
|
|
|
$
|
6.6
|
|
Interest cost
|
|
|
163.4
|
|
|
|
162.4
|
|
|
|
22.8
|
|
|
|
24.2
|
|
|
|
1.7
|
|
|
|
2.1
|
|
Expected return on plan assets
|
|
|
(360.1
|
)
|
|
|
(365.1
|
)
|
|
|
(39.1
|
)
|
|
|
(36.3
|
)
|
|
|
-
|
|
|
|
-
|
|
Amortization of losses
|
|
|
132.8
|
|
|
|
142.2
|
|
|
|
0.6
|
|
|
|
1.9
|
|
|
|
0.6
|
|
|
|
1.3
|
|
Amortization of prior service costs (credits)
|
|
|
1.4
|
|
|
|
1.8
|
|
|
|
(4.0
|
)
|
|
|
(4.1
|
)
|
|
|
0.5
|
|
|
|
0.5
|
|
Other adjustments
|
|
|
-
|
|
|
|
2.1
|
|
|
|
-
|
|
|
|
1.3
|
|
|
|
7.2
|
|
|
|
10.2
|
|
Settlement or curtailment losses
|
|
|
-
|
|
|
|
4.4
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
Net expense (income)
|
|
$
|
14.6
|
|
|
$
|
37.7
|
|
|
$
|
(11.0
|
)
|
|
$
|
(2.9
|
)
|
|
$
|
16.4
|
|
|
$
|
20.7
|
|
|
|
(15) Income Taxes
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (TCJA) was signed into law. The TCJA results in significant revisions to the U.S.
corporate income tax system, including a reduction in the U.S. corporate income tax rate, implementation of a territorial system and a
one-time
deemed repatriation tax on untaxed foreign earnings. The TCJA
also results in a U.S. federal statutory blended rate of 29.4 percent for fiscal 2018. Generally, the impacts of the new legislation would be required to be recorded in the period of enactment which for us is the third quarter of fiscal 2018.
However, Accounting Standards Update
2018-05:
Income Taxes (Topic 740)
(ASU
2018-05)
was issued with guidance allowing for the recognition of provisional amounts
in the event that the accounting is not complete and a reasonable estimate can be made. The guidance allows for a measurement period of up to one year from the enactment date to finalize the accounting related to the TCJA.
21
As of February 25, 2018, we have not completed our accounting for the tax effects of the
TCJA. During the third quarter of fiscal 2018, we recorded a provisional net benefit using reasonable estimates for those tax effects based on analysis and information available to date. The provisional net benefit is subject to revisions as we
complete our analysis of the TCJA, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service, Financial Accounting Standards Board, and other standard setting and
regulatory bodies. Adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. Our accounting for the tax effects of the TCJA will be completed during the measurement
period of up to one year from the enactment date.
During the third quarter of fiscal year 2018, we recorded an estimated net discrete
benefit of $503.8 million. This net benefit consists primarily of a $617.8 million provisional deferred tax benefit from revaluing our net U.S. deferred tax liabilities to reflect the new U.S. corporate tax rate, partially offset by an
$83.9 million provisional charge for the estimated transition tax and an additional $30.1 million provisional deferred tax liability related to changes in our assertion that we will reinvest unremitted foreign earnings indefinitely.
Our estimate of the deferred tax benefit due to the revaluation of our net U.S. deferred tax liabilities is a provisional amount under the
guidance in ASU
2018-05.
Due to the newly enacted U.S. tax rate change, timing differences that are estimated balances as of the date of enactment will result in changes to our estimate of the deferred rate
change when those estimates are finalized with the filing of our fiscal 2018 income tax return. This is a result of the different federal income tax rates of 29.4 percent and 21.0 percent for fiscal 2018 and fiscal 2019, respectively.
Since many of the deferred tax balances in the period of enactment include estimates of events that have not yet occurred, we are unable to determine the final impact of the tax rate change at this time.
As a result of the TCJA, we are
re-evaluating
our assertion regarding the indefinite reinvestment of
foreign earnings for most legal entities owned directly by our U.S. subsidiaries, and as such, we may need to accrue additional deferred taxes related to any changes in our assertion. As of the end of the third quarter of fiscal 2018, we have
recorded a provisional estimate for local country withholding taxes related to certain entities from which we expect to repatriate undistributed earnings. However, we do not have the necessary information gathered, prepared and analyzed to make a
reasonable estimate of the deferred taxes related to the rest of our foreign subsidiaries where we may change our indefinite reinvestment assertion. We will gather the information necessary for those subsidiaries and record any new deferred taxes in
future periods once the analysis is complete.
In general, the transition tax is a result of the deemed repatriation imposed by the new
legislation that results in the taxation of our accumulated foreign earnings and profits (E&P) at a 15.5 percent rate on liquid assets (i.e. cash and other specified assets) and 8 percent on the remaining unremitted foreign E&P,
both net of foreign tax credits. At this time, we have not yet gathered, prepared and analyzed the information necessary to complete the complex calculations required to finalize the amount of our transition tax. We believe that our provisional
calculations result in a reasonable estimate of the transition tax and related foreign tax credit, and as such have included those amounts in our provisional estimate in the third quarter of fiscal 2018. As we complete the analysis of
accumulated foreign E&P and related foreign taxes paid on an entity by entity basis and finalize the amounts held in cash or other specified assets, we will update our provisional estimate of the transition tax and related foreign tax credit in
a future period.
The legislation also includes provisions that will affect our fiscal 2019 results, including but not limited to, a
reduction in the U.S. corporate tax rate on domestic operations; the creation of a new minimum tax called the base erosion anti-abuse tax; a new provision that taxes U.S. allocated expenses as well as currently taxes certain income from foreign
operations (Global Intangible Low Tax Income or GILTI); a new limitation on deductible interest expense; the repeal of the domestic manufacturing deduction; and limitations on the deductibility of certain executive compensation.
While the new legislation generally eliminates U.S. federal income tax on dividends from foreign subsidiaries going forward, certain income
earned by certain subsidiaries must be included currently in our U.S. taxable income under the new GILTI inclusion rules. Because of the complexity of the new GILTI rules, we are evaluating this provision and the application of U.S.
GAAP. Under U.S. GAAP, we are allowed to make an accounting policy election and record the taxes as a period cost as incurred or factor such amounts into the measurement of deferred taxes. We have not yet computed a reasonable estimate of
the effect of this provision and therefore, have not made a policy decision regarding this item.
In addition, in the third quarter of
fiscal 2018, we adopted new accounting requirements that provide the option to reclassify stranded income tax effects resulting from TCJA from AOCI to retained earnings. We elected to reclassify the stranded income tax effects of the TCJA of
$329.4 million from AOCI to retained earnings. This reclassification consists of deferred taxes originally recorded in AOCI that exceed the newly enacted federal corporate tax rate. The new accounting requirements allow for adjustments to
reclassification amounts in subsequent periods as a result of changes to the provisional amounts recorded.
22
(16) Business Segment Information
We operate in the consumer foods industry. We have four operating segments by type of customer and geographic region as follows: North America
Retail; Convenience Stores & Foodservice; Europe & Australia; and Asia & Latin America.
Our North America
Retail operating segment reflects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains, 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 major product categories in our Convenience
Stores & Foodservice operating segment are
ready-to-eat
cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products, and
baking mixes. Many products we sell are branded to the consumer and nearly all are branded to our customers. We sell to distributors and operators in many customer channels including foodservice, convenience stores, vending, and supermarket bakeries
in the United States.
Our Europe & Australia operating segment 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 Asia & Latin America operating segment consists of retail and foodservice businesses in the greater Asia and South America
regions. Our product categories include super-premium ice cream and frozen desserts, refrigerated and frozen dough products, dessert and baking mixes, meal kits, salty and grain snacks, wellness beverages, and refrigerated yogurt. We also sell
super-premium ice cream and frozen desserts directly to consumers through owned retail shops. Our Asia & Latin America segment also includes products manufactured in the United States for export, mainly to Caribbean and Latin American
markets, as well as products we manufacture for sale to our international joint ventures. Revenues from export activities 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.
23
Our operating segment results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month Period Ended
|
|
In Millions
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Retail
|
|
$
|
2,517.4
|
|
|
$
|
2,499.0
|
|
|
$
|
7,727.4
|
|
|
$
|
7,804.8
|
|
Convenience Stores & Foodservice
|
|
|
460.3
|
|
|
|
448.5
|
|
|
|
1,419.6
|
|
|
|
1,382.3
|
|
Europe & Australia
|
|
|
469.8
|
|
|
|
424.5
|
|
|
|
1,428.4
|
|
|
|
1,338.0
|
|
Asia & Latin America
|
|
|
434.8
|
|
|
|
421.2
|
|
|
|
1,274.8
|
|
|
|
1,288.1
|
|
|
|
Total
|
|
$
|
3,882.3
|
|
|
$
|
3,793.2
|
|
|
$
|
11,850.2
|
|
|
$
|
11,813.2
|
|
|
|
Operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Retail
|
|
$
|
518.3
|
|
|
$
|
516.7
|
|
|
$
|
1,674.4
|
|
|
$
|
1,795.9
|
|
Convenience Stores & Foodservice
|
|
|
84.3
|
|
|
|
93.6
|
|
|
|
275.6
|
|
|
|
295.4
|
|
Europe & Australia
|
|
|
27.3
|
|
|
|
42.0
|
|
|
|
84.8
|
|
|
|
127.2
|
|
Asia & Latin America
|
|
|
(2.1
|
)
|
|
|
10.0
|
|
|
|
30.1
|
|
|
|
61.3
|
|
|
|
Total segment operating profit
|
|
|
627.8
|
|
|
|
662.3
|
|
|
|
2,064.9
|
|
|
|
2,279.8
|
|
Unallocated corporate items
|
|
|
27.6
|
|
|
|
42.2
|
|
|
|
102.3
|
|
|
|
143.6
|
|
Divestiture loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13.5
|
|
Restructuring, impairment, and other exit costs
|
|
|
7.5
|
|
|
|
77.6
|
|
|
|
14.3
|
|
|
|
165.5
|
|
|
|
Operating profit
|
|
$
|
592.7
|
|
|
$
|
542.5
|
|
|
$
|
1,948.3
|
|
|
$
|
1,957.2
|
|
|
|
(17) 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 $6.6 million in the third quarter of fiscal 2018
and $26.8 million in the nine-month period ended February 25, 2018. 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 $26.8 million and $65.1 million of cash provided by financing activities to operating activities for the nine-month periods ended February 25, 2018 and February 26, 2017, 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 $35.2 million of cash used by operating
activities to financing activities for the nine-month periods ended February 25, 2018 and February 26, 2017, 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.
(18) Subsequent Event
Subsequent to the
end of the third quarter fiscal 2018, we approved global cost savings initiatives designed to reduce administrative costs and align resources behind high growth priorities. In the fourth quarter of fiscal 2018, we expect to record total charges of
approximately $40 to $60 million, primarily reflecting employee termination benefits, all of which will be cash. The majority of these actions will be completed by the end of fiscal 2018 with the remainder completed in fiscal 2019 subject
to consultation as locally required.
24
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
Third Quarter Results
In the third
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 and Convenience Stores & Foodservice segments were offset by lower contributions from volume growth in the Europe & Australia and Asia & Latin America segments. In the third quarter, increased sales from
innovation and 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 15.3 percent was up 100 basis points from
year-ago
levels primarily driven by a decrease in restructuring expenses, partially offset by lower segment operating profit results. Adjusted operating profit margin decreased 120 basis points to 15.7 percent,
primarily driven by higher input costs, partially offset by improved price realization and mix and lower media and advertising expense. Diluted earnings per share of $1.62 increased 166 percent compared to the third quarter of fiscal 2017 and
adjusted diluted earnings per share of $0.79, which excludes certain items affecting comparability, on a constant-currency basis increased 8 percent compared to the third quarter last year (see the
Non-GAAP
Measures section below for a description of our use of measures not defined by GAAP).
A
summary of our consolidated financial results for the third quarter of fiscal 2018 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended Feb. 25, 2018
|
|
In millions, except
per share
|
|
|
Quarter Ended
Feb. 25, 2018 vs.
Feb. 26, 2017
|
|
|
Percent of Net
Sales
|
|
|
Constant-
Currency
Growth (a)
|
|
|
|
Net sales
|
|
$
|
3,882.3
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
592.7
|
|
|
|
9
|
%
|
|
|
15.3
|
%
|
|
|
|
|
Net earnings attributable to General Mills
|
|
|
941.4
|
|
|
|
163
|
%
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.62
|
|
|
|
166
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic net sales growth rate (a)
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Total segment operating profit (a)
|
|
|
627.8
|
|
|
|
(5
|
)%
|
|
|
|
|
|
|
(6)%
|
|
Adjusted operating profit margin (a)
|
|
|
|
|
|
|
|
|
|
|
15.7
|
%
|
|
|
|
|
Diluted earnings per share, excluding certain items affecting comparability (a)
|
|
$
|
0.79
|
|
|
|
10
|
%
|
|
|
|
|
|
|
8 %
|
|
|
|
(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
|
|
|
|
|
|
|
|
Feb. 25, 2018
|
|
|
Feb. 25, 2018 vs
Feb. 26, 2017
|
|
|
Feb. 26,
2017
|
|
|
|
Net sales (in millions)
|
|
$
|
3,882.3
|
|
|
|
2
|
%
|
|
$
|
3,793.2
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(1
|
)pt
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
1
|
pt
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
2
|
pts
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
25
The 2 percent increase in net sales in the third 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 third quarter of fiscal 2018 compared to the same period last year.
Organic net sales increased 1 percent in the third 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 Feb. 25, 2018 vs.
|
|
|
Quarter Ended Feb. 26, 2017
|
|
|
Contributions from organic volume growth (a)
|
|
Flat
|
Organic net price realization and mix
|
|
1 pt
|
|
|
|
Organic net sales growth
|
|
1 pt
|
Foreign currency exchange
|
|
2 pts
|
Acquisitions and divestitures
|
|
(1)pt
|
|
Net sales growth
|
|
2 pts
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Cost of sales
increased $142 million from the third quarter of fiscal 2017 to $2,627 million. The increase included a $180 million increase attributable to product rate and mix partially offset by a $24 million decrease attributable to
lower volume. We recorded a $3 million net increase in cost of sales related to the
mark-to-market
valuation of certain commodity positions and grain inventories in
the third quarter of fiscal 2018 compared to a net decrease of $8 million in the third quarter of fiscal 2017. We recorded immaterial restructuring charges in cost of sales in the third quarter of fiscal 2018 compared to $16 million in the
same period last year. We also recorded $3 million of restructuring initiative project-related costs in the third quarter of fiscal 2018 compared to $12 million in the same period last year (please refer to Note 3 to the Consolidated
Financial Statements in Part I, Item 1 of this report).
Selling, general, and administrative (SG&A) expenses
decreased
$32 million to $655 million in the third quarter of fiscal 2018 compared to the same period in fiscal 2017. The decrease in SG&A expenses primarily reflects a 22 percentage point decrease in media and advertising expense and savings
from cost management initiatives. In addition, we recorded $4 million of transaction costs related to our planned acquisition of Blue Buffalo Pet Products, Inc., (Blue Buffalo). SG&A expenses as a percent of net sales in the
third quarter of fiscal 2018 decreased 120 basis points compared with the third quarter of fiscal 2017.
Restructuring, impairment, and
other exit costs
totaled $8 million in the third quarter of fiscal 2018 compared to $78 million in the same period last year.
Total charges
associated with our current restructuring initiatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
In Millions
|
|
Feb. 25, 2018
|
|
|
Feb. 26, 2017
|
|
|
|
Charge
|
|
|
Cash
|
|
|
Charge
|
|
|
Cash
|
|
Global reorganization
|
|
|
$-
|
|
|
|
$6.2
|
|
|
|
$73.1
|
|
|
|
$9.2
|
|
Closure of Melbourne, Australia plant
|
|
|
3.1
|
|
|
|
3.2
|
|
|
|
5.7
|
|
|
|
0.1
|
|
Restructuring of certain international product lines
|
|
|
-
|
|
|
|
-
|
|
|
|
2.3
|
|
|
|
0.2
|
|
Closure of Vineland, New Jersey plant
|
|
|
0.2
|
|
|
|
1.2
|
|
|
|
7.7
|
|
|
|
0.3
|
|
Project Compass
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
(1.4
|
)
|
|
|
3.4
|
|
Project Century
|
|
|
3.6
|
|
|
|
1.2
|
|
|
|
7.1
|
|
|
|
8.9
|
|
Project Catalyst
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.6
|
|
Combination of certain operational facilities
|
|
|
0.7
|
|
|
|
0.8
|
|
|
|
(0.5
|
)
|
|
|
1.1
|
|
|
|
Total restructuring charges (a)
|
|
|
7.6
|
|
|
|
12.5
|
|
|
|
94.0
|
|
|
|
23.8
|
|
Project-related costs
|
|
|
3.0
|
|
|
|
3.0
|
|
|
|
11.5
|
|
|
|
11.5
|
|
|
|
Restructuring charges and project-related costs
|
|
|
$10.6
|
|
|
|
$15.5
|
|
|
|
$105.5
|
|
|
|
$35.3
|
|
|
|
(a)
|
Includes $ 0.1 million of restructuring charges recorded in cost of sales in the third quarter of fiscal 2018 and $16.4 million in the third 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.
26
Interest, net
for the third quarter of fiscal 2018 totaled $89 million, up
$13 million from fiscal 2017, primarily driven by $14 million of charges related to the repurchase of medium term notes and $2 million of charges related to the bridge term loan credit facility undertaken in order to provide financing
for the Blue Buffalo acquisition.
The
effective tax rate
for the third quarter of fiscal 2018 was an 85.9 percent benefit
compared to a 23.0 percent charge for the third quarter of fiscal 2017. The 108.9 percentage point decrease in our effective tax rate as compared to the prior year was primarily due to the provisional net benefit of approximately
$504 million recorded in the third quarter of fiscal 2018 related to the Tax Cuts and Jobs Act (TCJA). Our effective tax rate excluding certain items affecting comparability was 15.2 percent in the third quarter of fiscal 2018 compared to
24.7 percent in the third quarter of fiscal 2017 (see the
Non-GAAP
Measures section below for a description of our use of measures not defined by GAAP). The 9.5 percentage point decrease in
the effective tax rate excluding certain items affecting comparability was primarily due to the lower U.S. federal blended statutory rate for fiscal 2018, including an adjustment to reduce the tax expense recorded in the first half of fiscal 2018 to
the lower blended statutory rate, as a result of the TCJA, partially offset by nonrecurring discrete benefits recorded in the third quarter of fiscal 2017.
On December 22, 2017 the TCJA was signed into law. The TCJA results in significant revisions to the U.S. corporate income tax system,
including a reduction in the U.S. corporate income tax rate, implementation of a territorial system, and a deemed repatriation tax on untaxed foreign earnings. The TCJA also results in a U.S. federal blended statutory rate of 29.4 percent for
fiscal 2018. Generally, the impacts of the new legislation would be required to be recorded in the period of enactment, which for us is the third quarter of fiscal 2018. However, Accounting Standards Update
2018-05:
Income Taxes (Topic 740)
(ASU
2018-05)
was issued with guidance allowing for the recognition of provisional amounts in the event that the accounting is
not complete and a reasonable estimate can be made. The guidance allows for a measurement period of up to one year to finalize the accounting related to the TCJA. See Note 15 to the Consolidated Financial Statements in Part 1, Item 1 of this report
for additional information.
After-tax
earnings from joint ventures
increased
$6 million to $17 million for the third quarter of fiscal 2018 compared to the same period last fiscal year, primarily driven by higher volume and favorable foreign currency exchange for Cereal Partners Worldwide (CPW) and favorable
foreign currency exchange for
Häagen-Dazs
Japan, Inc. (HDJ). On a constant-currency basis,
after-tax
earnings from joint ventures increased 30 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 Feb. 25, 2018 vs.
|
|
|
|
|
|
|
Quarter Ended Feb. 26, 2017
|
|
CPW
|
|
|
HDJ
|
|
Contributions from volume growth (a)
|
|
|
4 pts
|
|
|
|
1 pt
|
|
Net price realization and mix
|
|
|
(2)pts
|
|
|
|
(4)pts
|
|
Foreign currency exchange
|
|
|
9 pts
|
|
|
|
3 pts
|
|
|
|
Net sales growth
|
|
|
11 pts
|
|
|
|
Flat
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The change in net sales for each
joint venture on a constant-currency basis is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended Feb. 25, 2018
|
|
|
|
|
|
|
|
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
|
|
|
11 %
|
|
|
|
9 pts
|
|
|
|
2
|
%
|
HDJ
|
|
|
Flat
|
|
|
|
3 pts
|
|
|
|
(3
|
)%
|
|
|
Joint Ventures
|
|
|
8 %
|
|
|
|
7 pts
|
|
|
|
1
|
%
|
|
|
Average diluted shares outstanding
decreased by 9 million in the third quarter of fiscal 2018 from the same period
a year ago due to the impact of share repurchases, partially offset by option exercises.
27
Nine-Month Results
In the nine-month period ended February 25, 2018, net sales were flat compared to the same period last year. Operating profit margin of
16.4 percent was down 20 basis points from
year-ago
levels primarily driven by lower segment operating profit results and unfavorable
mark-to-market
valuation of certain commodity positions, partially offset by a decrease in restructuring expenses. Adjusted operating profit margin decreased 190 basis
points to 16.7 percent, primarily driven by higher input costs including currency-driven inflation on imported products in certain markets. Diluted earnings per share of $3.05 increased 47 percent compared to the nine-month period ended
February 26, 2017, and adjusted diluted earnings per share, which excludes certain items affecting comparability, on a constant-currency basis decreased 2 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 nine-month period ended February 25, 2018, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended Feb. 25, 2018
|
|
In millions, except
per share
|
|
|
Nine-Month
Period Ended
Feb. 25, 2018 vs.
Feb. 26, 2017
|
|
|
Percent of Net
Sales
|
|
|
Constant-
Currency
Growth (a)
|
|
Net sales
|
|
$
|
11,850.2
|
|
|
|
Flat
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
1,948.3
|
|
|
|
Flat
|
|
|
|
16.4
|
%
|
|
|
|
|
Net earnings attributable to General Mills
|
|
|
1,776.6
|
|
|
|
42
|
%
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
3.05
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic net sales growth rate (a)
|
|
|
|
|
|
|
(1
|
) %
|
|
|
|
|
|
|
|
|
Total segment operating profit (a)
|
|
|
2,064.9
|
|
|
|
(9
|
) %
|
|
|
|
|
|
|
(10
|
) %
|
Adjusted operating profit margin (a)
|
|
|
|
|
|
|
|
|
|
|
16.7
|
%
|
|
|
|
|
Diluted earnings per share, excluding certain items affecting comparability (a)
|
|
$
|
2.32
|
|
|
|
(1
|
) %
|
|
|
|
|
|
|
(2
|
) %
|
|
|
(a)
|
See the
Non-GAAP
Measures section below for our use of measures not defined by GAAP.
|
Consolidated
net sales
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended
|
|
|
|
Feb. 25, 2018
|
|
|
Feb. 25, 2018 vs
Feb. 26, 2017
|
|
|
Feb. 26,
2017
|
|
Net sales (in millions)
|
|
$
|
11,850.2
|
|
|
|
Flat
|
|
|
$
|
11,813.2
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(1)pt
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
1 pt
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Net sales were flat for the nine-month
period ended February 25, 2018 compared to the same period in fiscal 2017.
Organic net sales declined 1 percent in the nine-month period ended
February 25, 2018, driven by declining contributions from organic volume growth in the Europe & Australia 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.
28
Components of organic net sales growth are shown in the following table:
|
|
|
|
|
Nine-Month Period Ended Feb. 25, 2018 vs.
Nine-Month Period Ended Feb. 26, 2017
|
|
|
|
Contributions from organic volume growth (a)
|
|
|
(1)pt
|
|
Organic net price realization and mix
|
|
|
Flat
|
|
Organic net sales growth
|
|
|
(1)pt
|
|
Foreign currency exchange
|
|
|
1 pt
|
|
Acquisitions and divestitures
|
|
|
Flat
|
|
Net sales growth
|
|
|
Flat
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Cost of sales
increased $273 million from the nine-month period ended February 26, 2017, to $7,842 million. The increase included a $428 million increase attributable to product rate and mix partially offset by a $114 million decrease
attributable to lower volume. We recorded $13 million of restructuring charges in cost of sales in the nine-month period ended February 25, 2018, compared to $43 million in the same period last year. We also recorded $8 million
of restructuring initiative project-related costs in the nine-month period ended February 25, 2018, compared to $36 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 $4 million net decrease in cost of sales related to the
mark-to-market
valuation of certain commodity positions and grain inventories in
the nine-month period ended February 25, 2018, compared to a net decrease of $21 million in the nine-month period ended February 26, 2017.
SG&A expenses
decreased $62 million to $2,046 million in the nine-month period ended February 25, 2018, compared to
the same period in fiscal 2017. The decrease in SG&A expenses primarily reflects savings from cost management initiatives and a 5 percentage point decrease in media and advertising expense. In addition, we recorded $4 million of transaction
costs related to our planned acquisition of Blue Buffalo. SG&A expenses as a percent of net sales in the nine-month period ended February 25, 2018 decreased 50 basis points compared with the same period of fiscal 2017.
Divestiture loss
in the nine-month period ended February 26, 2017 totaled $14 million from the sale of our Martel, Ohio
manufacturing facility.
Restructuring, impairment, and other exit costs
totaled $14 million in the nine-month period ended
February 25, 2018, compared to $165 million in the same period last year.
Total charges associated with our restructuring initiatives consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended
|
|
|
Fiscal 2017, 2016
and 2015
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
In Millions
|
|
Feb. 25, 2018
|
|
|
Feb. 26, 2017
|
|
|
Total
|
|
|
Future
|
|
|
Total
|
|
|
|
|
|
|
Charge
|
|
|
Cash
|
|
|
Charge
|
|
|
Cash
|
|
|
Charge
|
|
|
Cash
|
|
|
Charge
|
|
|
Cash
|
|
|
Charge
|
|
|
Cash
|
|
|
Savings (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global reorganization
|
|
|
$1.4
|
|
|
|
$32.9
|
|
|
|
$73.1
|
|
|
|
$9.2
|
|
|
|
$72.1
|
|
|
|
$20.0
|
|
|
|
$2
|
|
|
|
$23
|
|
|
|
$76
|
|
|
|
$76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure of Melbourne, Australia plant
|
|
|
8.0
|
|
|
|
6.6
|
|
|
|
17.7
|
|
|
|
0.1
|
|
|
|
21.9
|
|
|
|
1.6
|
|
|
|
4
|
|
|
|
(5
|
)
|
|
|
34
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring of certain international product lines
|
|
|
-
|
|
|
|
-
|
|
|
|
45.6
|
|
|
|
10.6
|
|
|
|
45.1
|
|
|
|
10.3
|
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
42
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure of Vineland, New Jersey plant
|
|
|
12.3
|
|
|
|
(1.9
|
)
|
|
|
35.6
|
|
|
|
1.5
|
|
|
|
41.4
|
|
|
|
7.3
|
|
|
|
-
|
|
|
|
5
|
|
|
|
54
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project Compass
|
|
|
(0.2
|
)
|
|
|
2.9
|
|
|
|
(0.4
|
)
|
|
|
11.4
|
|
|
|
54.3
|
|
|
|
48.9
|
|
|
|
-
|
|
|
|
2
|
|
|
|
54
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project Century
|
|
|
5.1
|
|
|
|
(2.2
|
)
|
|
|
37.2
|
|
|
|
29.5
|
|
|
|
408.4
|
|
|
|
95.5
|
|
|
|
-
|
|
|
|
47
|
|
|
|
413
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project Catalyst
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1.1
|
|
|
|
140.9
|
|
|
|
94.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
141
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combination of certain operational facilities
|
|
|
0.7
|
|
|
|
1.3
|
|
|
|
(0.5
|
)
|
|
|
3.7
|
|
|
|
13.3
|
|
|
|
16.3
|
|
|
|
3
|
|
|
|
(4
|
)
|
|
|
17
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges (a)
|
|
|
27.3
|
|
|
|
39.6
|
|
|
|
208.3
|
|
|
|
67.1
|
|
|
|
797.4
|
|
|
|
294.0
|
|
|
|
6
|
|
|
|
64
|
|
|
|
831
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project-related costs
|
|
|
8.4
|
|
|
|
8.0
|
|
|
|
36.4
|
|
|
|
40.2
|
|
|
|
114.6
|
|
|
|
111.1
|
|
|
|
5
|
|
|
|
11
|
|
|
|
128
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges and project-related costs
|
|
|
$35.7
|
|
|
|
$47.6
|
|
|
|
$244.7
|
|
|
|
$107.3
|
|
|
|
$912.0
|
|
|
|
$405.1
|
|
|
|
$11
|
|
|
|
$75
|
|
|
|
$959
|
|
|
|
$528
|
|
|
|
$700
|
|
(a)
|
Includes $13.0 million of restructuring charges recorded in cost of sales during the nine-month period ending February 25, 2018, $42.8 million during the same period in fiscal 2017, and
$179.5 million in fiscal 2017, 2016, and 2015 combined.
|
(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.
29
Interest, net
for the nine-month period ended February 25, 2018, increased
$11 million to $237 million compared to the same period of fiscal 2017, primarily driven by $14 million of charges related to the repurchase of medium term notes and $2 million of charges related to the bridge term loan credit
facility undertaken in order to provide financing for the Blue Buffalo acquisition.
The
effective tax rate
for the nine-month period ended
February 25, 2018, was a 1.7 percent benefit compared to a 29.5 percent charge for the nine-month period ended February 26, 2017. The 31.2 percentage point decrease in our effective tax rate as compared to the prior year was
primarily due to the provisional net benefit of approximately $504 million recorded in the third quarter of fiscal 2018 related to the TCJA. Our effective tax rate excluding certain items affecting comparability was 25.4 percent for the
nine-month period ended February 25, 2018 compared to 29.8 percent for the nine-month period ended February 26, 2017 (see the
Non-GAAP
Measures section below for a description of our
use of measures not defined by GAAP). The 4.4 percentage point decrease in the effective tax rate excluding certain items affecting comparability was primarily due to the lower U.S. federal blended statutory rate for fiscal 2018 as a result of the
TCJA, partially offset by nonrecurring discrete events recorded during the nine-month period ended February 26, 2017.
On
December 22, 2017 the TCJA was signed into law. The TCJA results in significant revisions to the U.S. corporate income tax system, including a reduction in the U.S. corporate income tax rate, implementation of a territorial system and a deemed
repatriation tax on untaxed foreign earnings. The TCJA also results in a U.S. federal blended statutory rate of 29.4 percent for fiscal 2018. Generally, the impacts of the new legislation would be required to be recorded in the period of
enactment which for us is the third quarter of fiscal 2018. However, ASU
2018-05
was issued with guidance allowing for the recognition of provisional amounts in the event that the accounting is not complete
and a reasonable estimate can be made. The guidance allows for a measurement period of up to one year to finalize the accounting related to the TCJA. See Note 15 to the Consolidated Financial Statements in Part 1, Item 1 of this report for
additional information.
After-tax
earnings from joint ventures
decreased $1 million
to $64 million for the nine-month period ended February 25, 2018, compared to the same period in fiscal 2017, driven by higher input costs for CPW and unfavorable foreign currency exchange for HDJ partially offset by favorable foreign
currency exchange for CPW. On a constant-currency basis,
after-tax
earnings from joint ventures decreased 4 percent (see the
Non-GAAP
Measures section
below for a description of our use of measures not defined by GAAP). The components of our joint ventures net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
Nine-month Period Ended February 25, 2018 vs.
|
|
|
|
|
|
|
|
|
|
Nine-month Period Ended February 26, 2017
|
|
CPW
|
|
|
HDJ
|
|
|
|
Contributions from volume growth (a)
|
|
|
1 pt
|
|
|
|
4 pts
|
|
Net price realization and mix
|
|
|
Flat
|
|
|
|
(2)pts
|
|
Foreign currency exchange
|
|
|
4 pts
|
|
|
|
(4)pts
|
|
|
|
Net sales growth
|
|
|
5 pts
|
|
|
|
(2)pts
|
|
|
|
(a) Measured in tons based on the stated weight of our product
shipments.
|
|
The change in net sales for each joint venture on a constant-currency basis is set forth in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended February 25, 2018
|
|
|
|
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
|
|
|
5 %
|
|
|
|
4 pts
|
|
|
|
1 %
|
|
HDJ
|
|
|
(2)%
|
|
|
|
(4)pts
|
|
|
|
2 %
|
|
|
|
|
|
|
|
Joint Ventures
|
|
|
4 %
|
|
|
|
3 pts
|
|
|
|
1 %
|
|
|
|
Average diluted shares outstanding
decreased by 18 million in the nine-month period ended
February 25, 2018, compared to the same period a year ago due to the impact of share repurchases, partially offset by option exercises.
30
SEGMENT OPERATING RESULTS
Our businesses are organized into four operating segments: North America Retail; Convenience Stores & Foodservice; Europe &
Australia; and Asia & Latin America.
North America Retail Segment Results
North America Retail net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month Period Ended
|
|
|
|
|
|
|
|
|
|
|
Feb. 25,
2018
|
|
|
Feb. 25, 2018 vs
Feb. 26, 2017
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 25, 2018 vs
Feb. 26, 2017
|
|
|
Feb. 26,
2017
|
|
Net sales (in millions)
|
|
$
|
2,517.4
|
|
|
|
1 %
|
|
|
$
|
2,499.0
|
|
|
$
|
7,727.4
|
|
|
|
(1)%
|
|
|
$
|
7,804.8
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
1 pt
|
|
|
|
|
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
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 third quarter of fiscal 2018 was driven by growth in the U.S. Meals & Baking, U.S. Snacks and Canada operating units partially offset by declines in the U.S. Yogurt and U.S. Cereal operating
units.
The 1 percent decrease in net sales for the nine-month period ended February 25, 2018, was driven by declines in the
U.S. Yogurt and U.S. Cereal operating units partially offset by growth in the U.S. Snacks and Canada operating units.
The components of North America
Retail organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
Nine-Month Period Ended
|
|
|
|
Feb. 25, 2018
|
|
|
|
|
Feb. 25, 2018
|
|
Contributions from organic volume growth (a)
|
|
|
1 pt
|
|
|
|
|
|
Flat
|
|
Organic net price realization and mix
|
|
|
Flat
|
|
|
|
|
|
(1)pt
|
|
Organic net sales growth
|
|
|
1 pt
|
|
|
|
|
|
(1)pt
|
|
Foreign currency exchange
|
|
|
1 pt
|
|
|
|
|
|
Flat
|
|
Acquisitions and divestitures
|
|
|
(1)pt
|
|
|
|
|
|
Flat
|
|
Net sales growth
|
|
|
1 pt
|
|
|
|
|
|
(1)pt
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
North America Retail
organic net sales increased 1 percent in the third quarter of fiscal 2018, compared to the same period in fiscal 2017, driven by an increase in contributions from organic volume growth.
North America Retail organic net sales decreased 1 percentage point in the nine-month period ended February 25, 2018, compared to the
same period in fiscal 2017, driven by unfavorable organic net price realization and mix.
31
North America Retail net sales percentage change by operating unit are shown in the following table:
|
|
|
|
|
|
|
Quarter Ended
|
|
Nine-Month
Period Ended
|
|
|
Feb. 25, 2018
|
|
Feb. 26, 2017
|
|
U.S. Snacks
|
|
3 %
|
|
2 %
|
Canada (a)
|
|
6
|
|
4
|
U.S. Meals & Baking
|
|
2
|
|
Flat
|
U.S. Cereal
|
|
(1)
|
|
(1)
|
U.S. Yogurt
|
|
(8)
|
|
(14)
|
|
Total
|
|
1 %
|
|
(1) %
|
|
(a)
|
On a constant currency basis, Canada net sales increased 1 percent for the third quarter of fiscal 2018
and were flat for the nine-month period ended February 25, 2018. See the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP.
|
Segment operating profit of $518 million in the third quarter of fiscal 2018 was flat compared to the same period of fiscal 2017 as
higher net sales and reduced SG&A expenses, including a 27 percent decrease in media and advertising, were offset by higher input costs, including inflation. Segment operating profit was flat on a constant-currency basis in the third
quarter of fiscal 2018 compared to the third 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 7 percent to $1,674 million in the nine-month period ended February 25, 2018, compared to
$1,796 million in the same period of fiscal 2017, driven primarily by lower net sales including increased merchandising activity and higher input costs, including inflation, partially offset by reduced SG&A expenses. Segment operating
profit decreased 7 percent on a constant-currency basis in the first nine months of fiscal 2018 compared to the first nine 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
|
|
|
Nine-Month
Period Ended
|
|
|
|
|
|
|
|
|
|
|
Feb. 25,
2018
|
|
|
Feb. 25, 2018 vs
Feb. 26, 2017
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 25, 2018 vs
Feb. 26, 2017
|
|
|
Feb. 26,
2017
|
|
|
|
Net sales (in millions)
|
|
$
|
460.3
|
|
|
|
3 %
|
|
|
$
|
448.5
|
|
|
$
|
1,419.6
|
|
|
|
3 %
|
|
|
$
|
1,382.3
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
1 pt
|
|
|
|
|
|
|
|
|
|
|
|
1 pt
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
2 pts
|
|
|
|
|
|
|
|
|
|
|
|
2 pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Convenience
Stores & Foodservice net sales increased 3 percent for the third quarter of fiscal 2018, reflecting higher net sales across Focus 6 platforms and benefits from market index pricing on bakery flour.
Convenience Stores & Foodservice net sales increased 3 percent for the nine-month period ended February 25, 2018,
reflecting higher net sales across Focus 6 platforms 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
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 25, 2018
|
|
|
Feb. 25, 2018
|
|
|
|
Contributions from organic volume growth (a)
|
|
|
1 pt
|
|
|
|
1 pt
|
|
Organic net price realization and mix
|
|
|
2 pts
|
|
|
|
2 pts
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
3 pts
|
|
|
|
3 pts
|
|
Net sales growth
|
|
|
3 pts
|
|
|
|
3 pts
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Segment operating
profit decreased 10 percent to $84 million in the third quarter of fiscal 2018 compared to $94 million in the third quarter of fiscal 2017, primarily driven by higher input costs, partially offset by higher net sales.
32
Segment operating profit decreased 7 percent to $276 million for the nine-month period
ended February 25, 2018, compared to $295 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
|
|
|
Nine-Month
Period Ended
|
|
|
|
|
|
|
|
|
|
|
Feb. 25,
2018
|
|
|
Feb. 25, 2018 vs.
Feb. 26, 2017
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 25, 2018 vs.
Feb. 26, 2017
|
|
|
Feb. 26,
2017
|
|
Net sales (in millions)
|
|
$
|
469.8
|
|
|
|
11 %
|
|
|
$
|
424.5
|
|
|
$
|
1,428.4
|
|
|
|
7 %
|
|
|
$
|
1,338.0
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(3) pts
|
|
|
|
|
|
|
|
|
|
|
|
(1) pt
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
2 pts
|
|
|
|
|
|
|
|
|
|
|
|
2 pts
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
12 pts
|
|
|
|
|
|
|
|
|
|
|
|
6 pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 11 percent
increase in Europe & Australia net sales in the third quarter of fiscal 2018 was driven primarily by favorable foreign currency exchange.
The 7 percent increase in Europe & Australia net sales in the nine-month period ended February 25, 2018, was driven
primarily 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
|
|
|
Nine-Month Period
Ended
|
|
|
|
Feb. 25, 2018
|
|
|
Feb. 25, 2018
|
|
Contributions from organic volume growth (a)
|
|
|
(3)pts
|
|
|
|
(1)pt
|
|
Organic net price realization and mix
|
|
|
2 pts
|
|
|
|
2 pts
|
|
Organic net sales growth
|
|
|
(1)pt
|
|
|
|
1 pt
|
|
Foreign currency exchange
|
|
|
12 pts
|
|
|
|
6 pts
|
|
Net sales growth
|
|
|
11 pts
|
|
|
|
7 pts
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 1 percent
decrease in Europe & Australia organic net sales growth in the third quarter of fiscal 2018 was driven primarily by a decrease in contributions from organic volume growth.
The 1 percent increase in Europe & Australia organic net sales growth in the nine-month period ended February 25, 2018, was
driven by favorable organic net price realization and mix partially offset by a decrease in contributions from organic volume growth.
Segment operating profit decreased 35 percent to $27 million in the third quarter of fiscal 2018 compared to $42 million in the
same period of fiscal 2017 primarily driven by input cost inflation, including currency-driven inflation on imported products in certain markets. Segment operating profit decreased 46 percent on a constant-currency basis in the third quarter of
fiscal 2018 compared to the third 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 33 percent to $85 million in the nine-month period ended February 25, 2018, compared to
$127 million in the same period of fiscal 2017 primarily driven by input cost inflation, including currency-driven inflation on imported products in certain markets. Segment operating profit decreased 38 percent on a constant-currency
basis in the nine-month period ended February 25, 2018, 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).
33
Asia & Latin America Segment Results
Asia & Latin America net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
|
|
|
|
|
|
|
Feb. 25,
2018
|
|
|
Feb. 25, 2018 vs.
Feb. 26, 2017
|
|
|
Feb. 26,
2017
|
|
|
Feb. 25,
2018
|
|
|
Feb. 25, 2018 vs.
Feb. 26, 2017
|
|
|
Feb. 26,
2017
|
|
Net sales (in millions)
|
|
$
|
434.8
|
|
|
|
3 %
|
|
|
$
|
421.2
|
|
|
$
|
1,274.8
|
|
|
|
(1)%
|
|
|
$
|
1,288.1
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(9) pts
|
|
|
|
|
|
|
|
|
|
|
|
(11)pts
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
9 pts
|
|
|
|
|
|
|
|
|
|
|
|
8 pts
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
3 pts
|
|
|
|
|
|
|
|
|
|
|
|
2 pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Asia & Latin
America net sales increased 3 percent in the third 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 1 percent in the nine-month period ended February 25, 2018, 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
|
|
|
Nine-Month Period
Ended
|
|
|
|
Feb. 25, 2018
|
|
|
Feb. 25, 2018
|
|
Contributions from organic volume growth (a)
|
|
|
(9)pts
|
|
|
|
(11)pts
|
|
Organic net price realization and mix
|
|
|
9 pts
|
|
|
|
8 pts
|
|
Organic net sales growth
|
|
|
Flat
|
|
|
|
(3)pts
|
|
Foreign currency exchange
|
|
|
3 pts
|
|
|
|
2 pts
|
|
Net sales growth
|
|
|
3 pts
|
|
|
|
(1)pt
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Asia & Latin
America organic net sales were flat for the third quarter of fiscal 2018 compared to the same period of fiscal 2017, reflecting a 9 percent decrease in contributions from organic volume growth offset by a 9 percent increase in organic net
price realization and mix.
The 3 percent decrease in Asia & Latin America organic net sales for the nine-month period ended
February 25, 2018, was driven by an 11 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 121 percent to a $2 million loss in the third quarter of fiscal 2018 compared to a
$10 million profit in the same period of fiscal 2017 primarily driven by higher input costs, including currency driven inflation on imported products in certain markets, and an increase in SG&A expenses. Segment operating profit decreased
134 percent on a constant-currency basis in the third quarter of fiscal 2018 compared to the third 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 51 percent to $30 million in the nine-month period ended
February 25, 2018, compared to $61 million in the same period of fiscal 2017 primarily driven by input cost inflation, including currency driven inflation on imported products in certain markets. Segment operating profit decreased
56 percent on a constant-currency basis in the first nine months of fiscal 2018 compared to the first nine months of fiscal 2017 (see the
Non-GAAP
Measures section below for our use of this
measure not defined by GAAP).
34
UNALLOCATED CORPORATE ITEMS
Unallocated corporate expense totaled $28 million in the third quarter of fiscal 2018 compared to $42 million in the same period in
fiscal 2017. In the third quarter of fiscal 2018, we recorded $3 million of restructuring initiative project-related costs in cost of sales compared to $16 million of restructuring charges and $12 million of restructuring initiative
project-related costs in cost of sales in the same period last year. In addition, we recorded a $3 million net increase in expense related to the
mark-to-market
valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2018 compared to an $8 million net decrease in expense in the same period last year. In addition, we recorded $4 million of acquisition
transaction costs related to our planned acquisition of Blue Buffalo.
Unallocated corporate expense totaled $102 million in the
nine-month period ended February 25, 2018, compared to $144 million in the same period last year. In the nine-month period ended February 25, 2018, we recorded $13 million of restructuring charges and $8 million of
restructuring initiative project-related costs in cost of sales compared to $43 million of restructuring charges and $36 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 nine-month
period ended February 25, 2018, compared to a $21 million net decrease in expense in the same period a year ago. In addition, we recorded $4 million of acquisition transaction costs related to our planned acquisition of Blue Buffalo.
LIQUIDITY
During
the nine-month period ended February 25, 2018, cash provided by operations was $2,135 million compared to $1,659 million in the same period last year. The $476 million increase is primarily driven by a $764 million change in
current assets and liabilities, partially offset by a $153 million change in restructuring activities in the first nine months of fiscal 2018. The $764 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, changes in inventory balances and changes in other current liabilities, which were largely driven by changes in incentive accruals and income taxes
payable.
Cash used by investing activities during the nine-month period ended February 25, 2018, was
$425 million, comparable to the same period in fiscal 2017. Investments of $398 million in land, buildings and equipment in the nine-month period ended February 25, 2018, decreased $77 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 first nine months of fiscal 2017. In addition, we received the final payment of $13 million from Sodiaal International (Sodiaal) in the first
nine months of fiscal 2017 to fully repay the exchangeable note we purchased in fiscal 2012.
Cash used by financing activities during the
nine-month period ended February 25, 2018, was $1,570 million compared to $1,083 million in the same period last year. We had $137 million of net debt repayments in the first nine months of fiscal 2018 compared to
$1,428 million of net debt issuances in the same period a year ago. We paid $601 million in cash to repurchase common stock and paid $846 million of dividends in the first nine months of fiscal 2018 compared to $1,651 million and
$856 million, respectively, in the same period last year.
As of February 25, 2018, we had $907 million of cash and cash
equivalents held in foreign jurisdictions. As a result of the TCJA, the historic undistributed earnings of our foreign subsidiaries will be taxed in the U.S. via the
one-time
repatriation tax in fiscal 2018.
We are
re-evaluating
our indefinite reinvestment assertions in connection with the TCJA. As of the end of the third quarter of fiscal 2018, we have recorded a provisional estimate for local country withholding
taxes related to certain entities from which we expect to begin repatriating undistributed earnings. As a result of this transition tax, we may repatriate our cash and cash equivalents held by our foreign subsidiaries without such funds being
subject to further U.S. income tax liability. We plan to repatriate a portion of these funds to finance part of the Blue Buffalo acquisition, to reduce commercial paper balances or for general corporate purposes. See Note 15 to the Consolidated
Financial Statements in Part 1, Item 1 of this report for further information on the indefinite reinvestment assertion.
35
CAPITAL RESOURCES
Our capital structure was as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Feb. 25,
2018
|
|
|
May 28,
2017
|
|
|
|
Notes payable
|
|
$
|
1,210.8
|
|
|
$
|
1,234.1
|
|
Current portion of long-term debt
|
|
|
1,250.5
|
|
|
|
604.7
|
|
Long-term debt
|
|
|
7,163.6
|
|
|
|
7,642.9
|
|
|
|
Total debt
|
|
|
9,624.9
|
|
|
|
9,481.7
|
|
Redeemable interest
|
|
|
817.5
|
|
|
|
910.9
|
|
Noncontrolling interests
|
|
|
369.1
|
|
|
|
357.6
|
|
Stockholders equity
|
|
|
4,965.6
|
|
|
|
4,327.9
|
|
|
|
Total capital
|
|
$
|
15,777.1
|
|
|
$
|
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.
In February 2018, we entered into a
fee-paid
commitment letter with certain lenders,
pursuant to which such lenders have committed to provide a
364-day
senior unsecured bridge term loan credit facility (the Bridge Facility) in an aggregate principal amount of up to
$8.5 billion to provide the financing for the planned acquisition of Blue Buffalo. To the extent we obtain funding for the acquisition by issuing debt or equity securities, the availability of the Bridge Facility will be correspondingly
reduced. The funding of the Bridge Facility is contingent on the satisfaction of certain customary conditions set forth in the commitment letter.
The following table details the
fee-paid
committed and uncommitted credit lines we had available as of
February 25, 2018:
|
|
|
|
|
|
|
|
|
In Billions
|
|
Facility
Amount
|
|
|
Borrowed
Amount
|
|
|
|
Credit facility expiring:
|
|
|
|
|
|
|
|
|
February 2019
|
|
$
|
8.5
|
|
|
$
|
-
|
|
May 2022
|
|
|
2.7
|
|
|
|
-
|
|
June 2019
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
Total committed credit facilities
|
|
|
11.4
|
|
|
|
0.2
|
|
Uncommitted credit facilities
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
Total committed and uncommitted credit facilities
|
|
$
|
11.9
|
|
|
$
|
0.4
|
|
|
|
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
February 25, 2018, we recorded Sodiaals 50 percent interests in Yoplait Marques SNC and Liberté Marques Sàrl as noncontrolling interests, and the redemption value of its 49 percent interest in Yoplait SAS as a
redeemable interest on our Consolidated Balance Sheets. These euro- and Canadian dollar-denominated interests are reported in U.S. dollars on our Consolidated Balance Sheets. Sodiaal has the ability to put all or a portion of its redeemable interest
to us at fair value once per year, up to three times before December 2024. As of February 25, 2018, the redemption value of the redeemable interest was $818 million, which approximates its fair value.
36
Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests
contain restrictive covenants. As of February 25, 2018, we were in compliance with all of these covenants.
During the third quarter
of fiscal 2018, we entered into a definitive agreement and plan of merger with Blue Buffalo, a publicly held pet food company, pursuant to which a subsidiary of General Mills will merge into Blue Buffalo, with Blue Buffalo surviving the merger as a
wholly owned subsidiary of General Mills. Equity holders of Blue Buffalo will receive $40.00 per share in cash, representing an enterprise value of approximately $8.0 billion in addition to the assumption of approximately $394 million of
outstanding debt which will be repaid upon transaction close. We expect to finance the transaction with a combination of debt, cash on hand and approximately $1.0 billion in equity.
We have $1,250 million of long-term debt maturing in the next 12 months that is classified as current, including $1,150 million of
5.65 percent notes due in February 2019 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 third 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 17 to the Consolidated Financial Statements
in Part I, Item 1 of this report for additional information.
Our significant accounting estimates are those that have meaningful
impact on the reporting of our financial condition and results of operations. These estimates include our accounting for promotional expenditures, valuation of long-lived assets, intangible assets, redeemable interest, stock-based compensation,
income taxes, and defined benefit pension, other postretirement benefit, and postemployment benefit plans. The assumptions and methodologies used in the determination of those estimates as of February 25, 2018, 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, new accounting requirements adopted in the third quarter of fiscal 2018 for the reclassification of certain income tax effects from accumulated other comprehensive income to retained earnings, and provisional estimates
recorded in the third quarter of fiscal 2018 in response to the TCJA (see below for further information). See Note 17 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information.
In response to the TCJA enacted on December 22, 2017, ASU
2018-05
was issued with guidance that
allows us to record provisional amounts for the impacts of the TCJA for which final accounting cannot be completed before we file our quarterly report on Form
10-Q
for the third quarter of fiscal 2018. For
provisions of the tax law where we are unable to make a reasonable estimate of the impact, the guidance allows us to continue to apply the historical tax provisions in computing our income tax liability and deferred tax assets and liabilities as of
February 25, 2018. The guidance also allows us to finalize accounting for the TCJA changes within one year of the December 22, 2017 enactment date. See Note 15 to the Consolidated Financial Statements in Part I, Item 1 of this report
for additional information.
37
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.
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.
38
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 expect to adopt using the cumulative effect approach at that time. 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. 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 16 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Constant-currency total segment operating profit growth is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change in
Total Segment
Operating Profit as
Reported
|
|
|
Impact of
Foreign
Currency
Exchange
|
|
|
Percentage Change in
Total Segment Operating
Profit on a Constant-
Currency Basis
|
|
|
|
Quarter Ended Feb. 25, 2018
|
|
|
(5
|
)%
|
|
|
1 pt
|
|
|
|
(6)%
|
|
Nine-Month Period Ended Feb. 25, 2018
|
|
|
(9
|
)%
|
|
|
1 pt
|
|
|
|
(10)%
|
|
|
|
39
Adjusted Operating Profit as a Percent of Net Sales (Adjusted Operating Profit Margin) Excluding Certain
Items Affecting Comparability
We believe this measure provides useful information to investors because it is important for
assessing our operating profit margin on a comparable basis. The adjustments are either items resulting from infrequently occurring events or items that, in managements judgment, significantly affect the year-over-year assessment of
operating results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
Feb. 25, 2018
|
|
|
|
|
|
Feb. 26, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
Value
|
|
|
Percent of Net
Sales
|
|
|
|
|
|
Value
|
|
|
Percent of
Net Sales
|
|
|
|
Operating profit as reported
|
|
$
|
592.7
|
|
|
|
15.3
|
%
|
|
|
|
|
|
$
|
542.5
|
|
|
|
14.3 %
|
|
Mark-to-market
effects
(a)
|
|
|
2.8
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
(8.2
|
)
|
|
|
(0.2)%
|
|
Restructuring charges (b)
|
|
|
7.6
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
94.0
|
|
|
|
2.5 %
|
|
Project-related costs (b)
|
|
|
3.0
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
11.5
|
|
|
|
0.3 %
|
|
Acquisition transaction costs (c)
|
|
|
3.5
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
-
|
|
|
|
- %
|
|
|
|
Adjusted operating profit
|
|
$
|
609.6
|
|
|
|
15.7
|
%
|
|
|
|
|
|
$
|
639.8
|
|
|
|
16.9 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended
|
|
|
|
|
|
|
|
|
Feb. 25, 2018
|
|
|
|
|
|
Feb. 26, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions
|
|
Value
|
|
|
Percent of
Net Sales
|
|
|
|
|
|
Value
|
|
|
Percent of
Net Sales
|
|
|
|
Operating profit as reported
|
|
$
|
1,948.3
|
|
|
|
16.4
|
%
|
|
|
|
|
|
$
|
1,957.2
|
|
|
|
16.6 %
|
|
Mark-to-market
effects
(a)
|
|
|
(3.5
|
)
|
|
|
-
|
%
|
|
|
|
|
|
|
(20.7
|
)
|
|
|
(0.2)%
|
|
Restructuring charges (b)
|
|
|
27.3
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
208.3
|
|
|
|
1.8 %
|
|
Project-related costs (b)
|
|
|
8.4
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
36.4
|
|
|
|
0.3 %
|
|
Divestiture loss (c)
|
|
|
-
|
|
|
|
-
|
%
|
|
|
|
|
|
|
13.5
|
|
|
|
0.1 %
|
|
Acquisition transaction costs (c)
|
|
|
3.5
|
|
|
|
-
|
%
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
Adjusted operating profit
|
|
$
|
1,984.0
|
|
|
|
16.7
|
%
|
|
|
|
|
|
$
|
2,194.7
|
|
|
|
18.6 %
|
|
|
|
|
(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. Acquisition transaction costs include $3.5 million of costs recorded in SG&A expenses for the quarter and nine-month period
ended February 25, 2018.
|
40
Diluted EPS Excluding Certain Items Affecting Comparability and Related Constant-Currency Growth Rate
This measure is used in reporting to our executive management and as a component of the Board of Directors measurement of
our performance for incentive compensation purposes. We believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate earnings performance on a comparable year-over-year basis. The
adjustments are either items resulting from infrequently occurring events or items that, in managements judgment, significantly affect the year-over-year assessment of operating results.
The reconciliation of our GAAP measure, diluted EPS, to diluted EPS excluding certain items affecting comparability and the related
constant-currency growth rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
|
|
|
|
|
Per Share Data
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Change
|
|
|
Feb. 25,
2018
|
|
|
Feb. 26,
2017
|
|
|
Change
|
|
|
|
|
|
|
|
|
Diluted earnings per share, as reported
|
|
$
|
1.62
|
|
|
$
|
0.61
|
|
|
|
166
|
%
|
|
$
|
3.05
|
|
|
$
|
2.08
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
Provisional net tax benefit (a)
|
|
|
(0.86
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(0.86
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax adjustment (b)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
0.07
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market
effects (c)
|
|
|
-
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
-
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Divestiture loss (d)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition transaction costs (d)
|
|
|
0.02
|
|
|
|
-
|
|
|
|
|
|
|
|
0.02
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges (e)
|
|
|
0.01
|
|
|
|
0.11
|
|
|
|
|
|
|
|
0.03
|
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
Project-related costs (e)
|
|
|
-
|
|
|
|
0.01
|
|
|
|
|
|
|
|
0.01
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share, excluding certain items
affecting comparability
|
|
$
|
0.79
|
|
|
$
|
0.72
|
|
|
|
10
|
%
|
|
$
|
2.32
|
|
|
$
|
2.35
|
|
|
|
(1
|
) %
|
|
|
|
|
|
|
|
Foreign currency exchange impact
|
|
|
|
|
|
|
|
|
|
|
2
|
pts
|
|
|
|
|
|
|
|
|
|
|
1
|
pt
|
|
|
|
|
|
|
|
Diluted earnings per share growth, excluding certain items affecting comparability, on a
constant-currency basis
|
|
|
|
|
|
|
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
(2
|
) %
|
|
|
|
(a)
|
See Note 15 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
|
(b)
|
See Note 1 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
|
(c)
|
See Note 6 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. Acquisition transaction costs include $15.9 million of charges recorded in interest, net, and $3.5 million of costs
recorded in SG&A expenses for the quarter and nine-month period ended February 25, 2018.
|
|
(e)
|
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 rates on a constant-currency basis is calculated as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change in After-
Tax Earnings from Joint
Ventures
as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in After-
Tax Earnings from Joint
Ventures on Constant-
Currency Basis
|
|
Quarter Ended Feb. 25, 2018
|
|
|
51
|
%
|
|
|
21 pts
|
|
|
|
30
|
%
|
Nine-Month Period Ended Feb. 25, 2018
|
|
|
(2
|
)%
|
|
|
2 pts
|
|
|
|
(4
|
)%
|
|
|
41
Net Sales Growth Rates for Our Canada Operating Unit on Constant-Currency Basis
We believe that this measure of our Canada operating unit net sales provides useful information to investors because it provides transparency to the
underlying performance for the Canada operating unit within our North America Retail segment by excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year
comparability given volatility in foreign currency exchange markets.
Net sales growth rates for our Canada operating unit on a constant-currency basis are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change in
Net Sales
as Reported
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in
Net Sales on Constant-
Currency Basis
|
|
Quarter Ended Feb. 25, 2018
|
|
6 %
|
|
|
5 pts
|
|
|
|
1
|
%
|
Nine-Month Period Ended Feb. 25, 2018
|
|
4 %
|
|
|
4 pts
|
|
|
|
Flat
|
|
|
|
Constant-Currency Segment Operating Profit Growth Rates
We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our
segments by excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year
comparability given volatility in foreign currency exchange
markets.
Our segments operating profit growth rates on a constant-currency basis are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended Feb. 25, 2018
|
|
|
|
|
|
|
|
Percentage Change in
Operating Profit
as Reported
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in Operating
Profit on Constant-Currency
Basis
|
|
North America Retail
|
|
Flat
|
|
|
Flat
|
|
|
|
Flat
|
|
Europe & Australia
|
|
(35)%
|
|
|
11 pts
|
|
|
|
(46
|
)%
|
Asia & Latin America
|
|
(121)%
|
|
|
13 pts
|
|
|
|
(134
|
)%
|
|
|
|
|
|
|
Nine-Month Period Ended Feb. 25, 2018
|
|
|
|
Percentage Change in
Operating Profit
as Reported
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in Operating
Profit on Constant-Currency
Basis
|
|
North America Retail
|
|
(7)%
|
|
|
Flat
|
|
|
|
(7
|
)%
|
Europe & Australia
|
|
(33)%
|
|
|
5 pts
|
|
|
|
(38
|
)%
|
Asia & Latin America
|
|
(51)%
|
|
|
5 pts
|
|
|
|
(56
|
)%
|
|
|
42
Effective Income Tax Rate Excluding Certain Items Affecting Comparability
We believe this measure provides useful information to investors because it is important for assessing the effective tax rate excluding certain items
affecting comparability and presents the income tax effects of certain items affecting comparability.
Effective income tax rates excluding certain items
affecting comparability are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
Nine-Month Period Ended
|
|
|
|
Feb. 25, 2018
|
|
|
|
|
|
Feb. 26, 2017
|
|
|
|
|
|
Feb. 25, 2018
|
|
|
|
|
|
Feb. 26, 2017
|
|
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
|
|
|
$503.4
|
|
|
|
$(432.5)
|
|
|
|
|
|
|
|
$466.1
|
|
|
|
$107.0
|
|
|
|
|
|
|
|
$1,711.7
|
|
|
|
$(29.1)
|
|
|
|
|
|
|
|
$1,731.4
|
|
|
|
$511.0
|
|
Provisional tax benefit (b)
|
|
|
-
|
|
|
|
503.8
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
503.8
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Mark-to-market effects
(c)
|
|
|
2.8
|
|
|
|
1.2
|
|
|
|
|
|
|
|
(8.2
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
(3.5
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(20.7
|
)
|
|
|
(7.7
|
)
|
Restructuring charges (d)
|
|
|
7.6
|
|
|
|
0.8
|
|
|
|
|
|
|
|
94.0
|
|
|
|
31.0
|
|
|
|
|
|
|
|
27.3
|
|
|
|
6.7
|
|
|
|
|
|
|
|
208.3
|
|
|
|
66.7
|
|
Project-related costs (d)
|
|
|
3.0
|
|
|
|
0.7
|
|
|
|
|
|
|
|
11.5
|
|
|
|
4.1
|
|
|
|
|
|
|
|
8.4
|
|
|
|
2.5
|
|
|
|
|
|
|
|
36.4
|
|
|
|
13.1
|
|
Divestiture loss (e)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
13.5
|
|
|
|
4.3
|
|
Acquisition transaction costs (e)
|
|
|
19.4
|
|
|
|
5.6
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
19.4
|
|
|
|
5.6
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Tax adjustment (f)
|
|
|
-
|
|
|
|
1.7
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
(40.5
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
As adjusted
|
|
|
$536.2
|
|
|
|
$81.3
|
|
|
|
|
|
|
|
$563.4
|
|
|
|
$139.0
|
|
|
|
|
|
|
|
$1,763.3
|
|
|
|
$447.9
|
|
|
|
|
|
|
|
$1,968.9
|
|
|
|
$587.4
|
|
|
|
Effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
(85.9)%
|
|
|
|
|
|
|
|
|
|
|
|
23.0%
|
|
|
|
|
|
|
|
|
|
|
|
(1.7)%
|
|
|
|
|
|
|
|
|
|
|
|
29.5%
|
|
As adjusted
|
|
|
|
|
|
|
15.2%
|
|
|
|
|
|
|
|
|
|
|
|
24.7%
|
|
|
|
|
|
|
|
|
|
|
|
25.4%
|
|
|
|
|
|
|
|
|
|
|
|
29.8%
|
|
|
|
Sum of adjustment to income taxes
|
|
|
|
|
|
|
$
513.8
|
|
|
|
|
|
|
|
|
|
|
|
$ 32.0
|
|
|
|
|
|
|
|
|
|
|
|
$
477.0
|
|
|
|
|
|
|
|
|
|
|
|
$ 76.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares - diluted EPS
|
|
|
|
582.7
|
|
|
|
|
|
|
|
|
|
|
|
591.4
|
|
|
|
|
|
|
|
|
|
|
|
583.2
|
|
|
|
|
|
|
|
|
|
|
|
601.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of income tax adjustments on diluted EPS excluding certain items affecting
comparability
|
|
|
|
$0.88
|
|
|
|
|
|
|
|
|
|
|
|
$0.05
|
|
|
|
|
|
|
|
|
|
|
|
$0.82
|
|
|
|
|
|
|
|
|
|
|
|
$0.13
|
|
|
|
(a)
|
Earnings before income taxes and
after-tax
earnings from joint ventures.
|
(b)
|
See Note 15 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(c)
|
See Note 6 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.
|
(e)
|
See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report. Acquisition transaction costs include $15.9 million of charges recorded in interest, net, and $3.5 million of costs
recorded in SG&A expenses for the quarter and nine-month period ended February 25, 2018.
|
(f)
|
See Note 1 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
43
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.
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.
Hedge
accounting.
Accounting for qualifying hedges that allows changes in a hedging instruments fair value to offset corresponding changes in the hedged item in the same reporting period. Hedge accounting is permitted for certain hedging
instruments and hedged items only if the hedging relationship is highly effective, and only prospectively from the date a hedging relationship is formally documented.
Interest bearing instruments.
Notes payable, long-term debt, including current portion, cash and cash equivalents, and certain interest
bearing investments classified within prepaid expenses and other current assets and other assets.
LIBOR.
London Interbank Offered
Rate.
Mark-to-market.
The act of determining a
value for financial instruments, commodity contracts, and related assets or liabilities based on the current market price for that item.
44
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.
TCJA.
U.S. Tax Cuts and Jobs Act which was signed into law on December 22, 2017.
Total debt.
Notes payable and long-term debt, including current portion.
Translation adjustments.
The impact of the conversion of our foreign affiliates financial statements to U.S. dollars for the
purpose of consolidating our financial statements.
45
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, including our acquisition of Blue Buffalo and issues in the integration of Blue Buffalo and retention of key management and employees; unfavorable reaction to our acquisition of Blue Buffalo by customers,
competitors, suppliers, and employees; changes in capital structure; changes in the legal and regulatory environment, including tax 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 and Item 1A of Part II in this report, which could also affect our future results.
We undertake no obligation to publicly revise any forward-looking statements to reflect events or circumstances after the date of those
statements or to reflect the occurrence of anticipated or unanticipated events.