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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

(Mark One)

R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2020

 

£TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM              TO

 

Commission file number: 001-01185

________________

GENERAL MILLS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

41-0274440

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

Number One General Mills Boulevard

 

Minneapolis, Minnesota

55426

(Address of principal executive offices)

(Zip Code)

 

 

 

(763)764-7600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange

on which registered

Common Stock, $.10 par value

 

GIS

 

New York Stock Exchange

1.000% Notes due 2023

 

GIS23A

 

New York Stock Exchange

0.450% Notes due 2026

 

GIS26

 

New York Stock Exchange

1.500% Notes due 2027

 

GIS27

 

New York Stock Exchange

 

 

 

________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes RNo £

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and such files). Yes RNo £

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer R

 

Accelerated filer £

Non-accelerated filer ££

 

Smaller reporting company£

 

 

 

 

Emerging growth company £

 

 

 


 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £No R

 

Number of shares of Common Stock outstanding as of September 15, 2020: 611,333,854 (excluding 143,279,474 shares held in the treasury).

 


 

General Mills, Inc.

 

Table of Contents

 

 

Page

PART I – Financial Information

 

Item 1. Financial Statements

 

Consolidated Statements of Earnings for the quarters ended August 30, 2020 and August 25, 2019

4

Consolidated Statements of Comprehensive Income for the quarters ended August 30, 2020 and August 25, 2019

5

Consolidated Balance Sheets as of August 30, 2020, and May 31, 2020

6

Consolidated Statements of Total Equity and Redeemable Interest for the quarters ended August 30, 2020 and August 25, 2019

7

Consolidated Statements of Cash Flows for the quarters ended August 30, 2020 and August 25, 2019

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3. Quantitative and Qualitative Disclosures About Market Risk

33

Item 4. Controls and Procedures

34

PART II – Other Information

 

Item 6. Exhibits

35

Signatures

36

 

 

3


 

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

 

 

Aug. 30, 2020

 

 

Aug. 25, 2019

Net sales

$

4,364.0

 

$

4,002.5

Cost of sales

 

2,773.6

 

 

2,613.0

Selling, general, and administrative expenses

 

736.2

 

 

718.9

Restructuring, impairment, and other exit costs

 

0.5

 

 

8.2

Operating profit

 

853.7

 

 

662.4

Benefit plan non-service income

 

(33.3)

 

 

(30.2)

Interest, net

 

111.1

 

 

118.7

Earnings before income taxes and after-tax earnings from joint ventures

 

775.9

 

 

573.9

Income taxes

 

170.8

 

 

67.2

After-tax earnings from joint ventures

 

41.3

 

 

21.8

Net earnings, including earnings attributable to redeemable and noncontrolling interests

 

646.4

 

 

528.5

Net earnings attributable to redeemable and noncontrolling interests

 

7.5

 

 

7.9

Net earnings attributable to General Mills

$

638.9

 

$

520.6

Earnings per share - basic

$

1.04

 

$

0.86

Earnings per share - diluted

$

1.03

 

$

0.85

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

4


 

Consolidated Statements of Comprehensive Income

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions)

 

 

 

 

 

 

 

Quarter Ended

 

 

Aug. 30, 2020

 

 

Aug. 25, 2019

Net earnings, including earnings attributable to redeemable and noncontrolling interests

$

646.4

 

$

528.5

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Foreign currency translation

 

66.2

 

 

(3.7)

Other fair value changes:

 

 

 

 

 

Hedge derivatives

 

(12.1)

 

 

3.8

Reclassification to earnings:

 

 

 

 

 

Hedge derivatives

 

(1.7)

 

 

(0.6)

Amortization of losses and prior service costs

 

19.5

 

 

19.6

Other comprehensive income, net of tax

 

71.9

 

 

19.1

Total comprehensive income

 

718.3

 

 

547.6

Comprehensive income attributable to redeemable and noncontrolling interests

 

73.7

 

 

2.2

Comprehensive income attributable to General Mills

$

644.6

 

$

545.4

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

5


 

Consolidated Balance Sheets

 

GENERAL MILLS, INC. AND SUBSIDIARIES

 

(In Millions, Except Par Value)

 

 

 

 

Aug. 30, 2020

 

 

May 31, 2020

 

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,796.7

 

$

1,677.8

 

Receivables

 

 

1,633.0

 

 

1,615.1

 

Inventories

 

 

1,605.1

 

 

1,426.3

 

Prepaid expenses and other current assets

 

 

320.0

 

 

402.1

 

Total current assets

 

 

5,354.8

 

 

5,121.3

 

Land, buildings, and equipment

 

 

3,557.0

 

 

3,580.6

 

Goodwill

 

 

14,010.1

 

 

13,923.2

 

Other intangible assets

 

 

7,150.4

 

 

7,095.8

 

Other assets

 

 

1,189.9

 

 

1,085.8

 

Total assets

 

$

31,262.2

 

$

30,806.7

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

3,184.4

 

$

3,247.7

 

Current portion of long-term debt

 

 

2,625.7

 

 

2,331.5

 

Notes payable

 

 

162.7

 

 

279.0

 

Other current liabilities

 

 

1,639.9

 

 

1,633.3

 

Total current liabilities

 

 

7,612.7

 

 

7,491.5

 

Long-term debt

 

 

10,832.9

 

 

10,929.0

 

Deferred income taxes

 

 

1,924.5

 

 

1,947.1

 

Other liabilities

 

 

1,549.3

 

 

1,545.0

 

Total liabilities

 

 

21,919.4

 

 

21,912.6

 

Redeemable interest

 

 

584.9

 

 

544.6

 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock, 754.6 shares issued, $0.10 par value

 

75.5

 

 

75.5

 

Additional paid-in capital

 

 

1,335.5

 

 

1,348.6

 

Retained earnings

 

 

16,312.5

 

 

15,982.1

 

Common stock in treasury, at cost, shares of 143.3 and 144.8

 

(6,370.2)

 

 

(6,433.3)

 

Accumulated other comprehensive loss

 

 

(2,908.7)

 

 

(2,914.4)

 

Total stockholders' equity

 

 

8,444.6

 

 

8,058.5

 

Noncontrolling interests

 

 

313.3

 

 

291.0

 

Total equity

 

 

8,757.9

 

 

8,349.5

 

Total liabilities and equity

 

$

31,262.2

 

$

30,806.7

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

6


 

Consolidated Statements of Total Equity and Redeemable Interest

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions, Except per Share Data)

 

Quarter Ended

 

Aug. 30, 2020

 

Aug. 25, 2019

 

Shares

 

Amount

 

Shares

 

Amount

Total equity, beginning balance

 

 

$

8,349.5

 

 

 

$

7,367.7

Common stock, 1 billion shares authorized, $0.10 par value

754.6

 

 

75.5

 

754.6

 

 

75.5

Additional paid-in capital:

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

 

1,348.6

 

 

 

 

1,386.7

Stock compensation plans

 

 

 

23.6

 

 

 

 

18.0

Unearned compensation related to stock unit awards

 

 

 

(74.9)

 

 

 

 

(66.5)

Earned compensation

 

 

 

28.2

 

 

 

 

28.7

Decrease in redemption value of redeemable interest

 

 

 

10.0

 

 

 

 

4.0

Ending balance

 

 

 

1,335.5

 

 

 

 

1,370.9

Retained earnings:

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

 

15,982.1

 

 

 

 

14,996.7

Comprehensive income

 

 

 

638.9

 

 

 

 

520.6

Cash dividends declared ($0.49 and $0.49 per share)

 

 

 

(302.8)

 

 

 

 

(298.5)

Adoption of current expected credit loss accounting requirements

 

 

 

(5.7)

 

 

 

 

-

Ending balance

 

 

 

16,312.5

 

 

 

 

15,218.8

Common stock in treasury:

 

 

 

 

 

 

 

 

 

Beginning balance

(144.8)

 

 

(6,433.3)

 

(152.7)

 

 

(6,779.0)

Stock compensation plans

1.5

 

 

63.1

 

2.2

 

 

97.2

Ending balance

(143.3)

 

 

(6,370.2)

 

(150.5)

 

 

(6,681.8)

Accumulated other comprehensive loss:

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

 

(2,914.4)

 

 

 

 

(2,625.4)

Comprehensive income

 

 

 

5.7

 

 

 

 

24.8

Ending balance

 

 

 

(2,908.7)

 

 

 

 

(2,600.6)

Noncontrolling interests:

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

 

291.0

 

 

 

 

313.2

Comprehensive income

 

 

 

23.4

 

 

 

 

2.1

Distributions to noncontrolling interest holders

 

 

 

(1.1)

 

 

 

 

(2.5)

Ending balance

 

 

 

313.3

 

 

 

 

312.8

Total equity, ending balance

 

 

$

8,757.9

 

 

 

$

7,695.6

Redeemable interest:

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

 

544.6

 

 

 

 

551.7

Comprehensive income

 

 

 

50.3

 

 

 

 

0.1

Decrease in redemption value of redeemable interest

 

 

 

(10.0)

 

 

 

 

(4.0)

Ending balance

 

 

$

584.9

 

 

 

$

547.8

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

7


 

Consolidated Statements of Cash Flows

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions)

 

Quarter Ended

 

 

Aug. 30, 2020

 

 

Aug. 25, 2019

Cash Flows - Operating Activities

 

 

 

 

 

Net earnings, including earnings attributable to redeemable and noncontrolling interests

$

646.4

 

$

528.5

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

146.1

 

 

154.1

After-tax earnings from joint ventures

 

(41.3)

 

 

(21.8)

Distributions of earnings from joint ventures

 

19.9

 

 

20.7

Stock-based compensation

 

28.3

 

 

28.8

Deferred income taxes

 

23.0

 

 

(37.2)

Pension and other postretirement benefit plan contributions

 

(5.6)

 

 

(6.9)

Pension and other postretirement benefit plan costs

 

(8.6)

 

 

(7.8)

Restructuring, impairment, and other exit costs

 

(2.7)

 

 

4.9

Changes in current assets and liabilities

 

(157.8)

 

 

(84.6)

Other, net

 

(64.1)

 

 

(6.6)

Net cash provided by operating activities

 

583.6

 

 

572.1

Cash Flows - Investing Activities

 

 

 

 

 

Purchases of land, buildings, and equipment

 

(117.0)

 

 

(69.8)

Investments in affiliates, net

 

(0.7)

 

 

(12.5)

Proceeds from disposal of land, buildings, and equipment

 

0.3

 

 

0.3

Other, net

 

(5.6)

 

 

(1.7)

Net cash used by investing activities

 

(123.0)

 

 

(83.7)

Cash Flows - Financing Activities

 

 

 

 

 

Change in notes payable

 

(120.9)

 

 

(170.0)

Issuance of long-term debt

 

595.2

 

 

-

Payment of long-term debt

 

(555.1)

 

 

(0.1)

Proceeds from common stock issued on exercised options

 

30.0

 

 

55.8

Dividends paid

 

(302.8)

 

 

(298.5)

Distributions to noncontrolling and redeemable interest holders

 

(1.1)

 

 

(2.5)

Other, net

 

(18.0)

 

 

(13.3)

Net cash used by financing activities

 

(372.7)

 

 

(428.6)

Effect of exchange rate changes on cash and cash equivalents

 

31.0

 

 

(5.0)

Increase in cash and cash equivalents

 

118.9

 

 

54.8

Cash and cash equivalents - beginning of year

 

1,677.8

 

 

450.0

Cash and cash equivalents - end of period

$

1,796.7

 

$

504.8

Cash Flow from changes in current assets and liabilities:

 

 

 

 

 

Receivables

$

7.2

 

$

(37.4)

Inventories

 

(158.6)

 

 

(145.3)

Prepaid expenses and other current assets

 

88.2

 

 

148.0

Accounts payable

 

(45.9)

 

 

(35.8)

Other current liabilities

 

(48.7)

 

 

(14.1)

Changes in current assets and liabilities

$

(157.8)

 

$

(84.6)

See accompanying notes to consolidated financial statements.

 

 

 

 

8


 

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 (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 August 30, 2020, are not necessarily indicative of the results that may be expected for the fiscal year ending May 30, 2021.

 

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 31, 2020. 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 new requirements adopted in the first quarter of fiscal 2021.

In the first quarter of fiscal 2021, we adopted new accounting requirements related to the measurement of credit losses on financial instruments, including trade receivables. The new standard and subsequent amendments replace the incurred loss impairment model with a forward-looking expected credit loss model, which will generally result in earlier recognition of credit losses. Our allowance for doubtful accounts represents our estimate of expected credit losses related to our trade receivables. We pool our trade receivables based on similar risk characteristics, such as geographic location, business channel, and other account data. To estimate our allowance for doubtful accounts, we leverage information on historical losses, asset-specific risk characteristics, current conditions, and reasonable and supportable forecasts of future conditions. Account balances are written off against the allowance when we deem the amount is uncollectible. We adopted the requirements of the new standard and subsequent amendments using the modified retrospective transition approach, and recorded a decrease to retained earnings of $5.7 million after-tax.

Certain terms used throughout this report are defined in the “Glossary” section below.

 

 

(2) Restructuring, Impairment, and Other Exit Costs

 

During the first quarter of fiscal 2021, we did not undertake any new restructuring actions. We recorded $1.0 million of restructuring charges in the first quarter of fiscal 2021 for previously announced restructuring actions. We recorded $14.3 million of restructuring charges in the first quarter of fiscal 2020. The restructuring charges primarily relate to actions to drive efficiencies in targeted areas of our global supply chain. Certain actions are subject to union negotiations and works counsel consultations, where required. We expect these actions to be completed by the end of fiscal 2022.

 

We paid net $3.7 million of cash in the first quarter of fiscal 2021 related to restructuring actions previously announced. We paid net $9.4 million of cash in the same period of fiscal 2020.

 

Restructuring and impairment charges are recorded in our Consolidated Statements of Earnings as follows:

 

 

 

Quarter Ended

In Millions

 

Aug. 30, 2020

 

Aug. 25, 2019

Restructuring, impairment, and other exit costs

$

0.5

$

8.2

Cost of sales

 

0.5

 

6.1

Total restructuring charges

$

1.0

$

14.3

9


 

(3) Goodwill and Other Intangible Assets

 

The components of goodwill and other intangible assets are as follows:

 

In Millions

 

Aug. 30, 2020

 

May 31, 2020

Goodwill

$

14,010.1

$

13,923.2

Other intangible assets:

 

 

 

 

Intangible assets not subject to amortization:

 

 

 

 

Brands and other indefinite-lived intangibles

 

6,606.6

 

6,561.4

Intangible assets subject to amortization:

 

 

 

 

Franchise agreements, customer relationships, and other finite-lived intangibles

 

809.8

 

777.8

Less accumulated amortization

 

(266.0)

 

(243.4)

Intangible assets subject to amortization, net

 

543.8

 

534.4

Other intangible assets

 

7,150.4

 

7,095.8

Total

$

21,160.5

$

21,019.0

 

Based on the carrying value of finite-lived intangible assets as of August 30, 2020, annual amortization expense for each of the next five fiscal years is estimated to be approximately $40 million.

 

The changes in the carrying amount of goodwill during the first quarter of fiscal 2021 were as follows:

 

In Millions

 

North America Retail

 

Pet

 

Convenience Stores & Foodservice

 

Europe & Australia

 

Asia & Latin America

 

Joint Ventures

 

Total

Balance as of May 31, 2020

 

$

6,403.7

 

$

5,300.5

 

$

918.8

 

$

690.7

 

$

203.8

 

$

405.7

 

$

13,923.2

Other activity, primarily foreign currency translation

 

 

5.8

 

 

-

 

 

-

 

 

51.3

 

 

0.5

 

 

29.3

 

 

86.9

Balance as of Aug. 30, 2020

 

$

6,409.5

 

$

5,300.5

 

$

918.8

 

$

742.0

 

$

204.3

 

$

435.0

 

$

14,010.1

 

The changes in the carrying amount of other intangible assets during the first quarter of fiscal 2021 were as follows:

 

In Millions

 

 

Total

Balance as of May 31, 2020

 

$

7,095.8

Other activity, primarily foreign currency translation

 

 

54.6

Balance as of Aug. 30, 2020

 

$

7,150.4

 

Our annual goodwill and indefinite-lived intangible assets impairment test was performed on the first day of the second quarter of fiscal 2020, 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 Europe & Australia reporting unit and the Progresso brand intangible asset.

 

The excess fair value as of the fiscal 2020 test date of the Europe & Australia reporting unit and the Progresso brand intangible asset is as follows:

 

In Millions

 

Carrying Value of Intangible Asset

 

 

Excess Fair Value as of Fiscal 2020 Test Date

Europe & Australia

$

672.6

 

 

14%

Progresso

$

330.0

 

 

5%

 

In addition, while having significant coverage as of our fiscal 2020 assessment date, the Pillsbury brand intangible asset had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.

10


 

(4) Inventories

 

The components of inventories were as follows:

 

In Millions

 

Aug. 30, 2020

 

 

May 31, 2020

Raw materials and packaging

$

436.3

 

$

392.2

Finished goods

 

1,286.4

 

 

1,142.6

Grain

 

78.5

 

 

93.6

Excess of FIFO over LIFO cost

 

(196.1)

 

 

(202.1)

Total

$

1,605.1

 

$

1,426.3

 

(5) 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, these gains and losses are reported in unallocated corporate items outside of segment operating results until such time that the exposure we are managing affects earnings. At that time we reclassify the gain or loss from unallocated corporate items to segment operating profit, allowing our operating segments to realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in unallocated corporate items.

 

Unallocated corporate items for the quarters ended August 30, 2020, and August 25, 2019, included:

 

 

Quarter Ended

In Millions

 

Aug. 30, 2020

 

 

Aug. 25, 2019

Net gain (loss) on mark-to-market valuation of certain commodity positions

$

10.4

 

$

(20.7)

Net loss on commodity positions reclassified from unallocated corporate items to segment operating profit

 

12.0

 

 

11.3

Net mark-to-market revaluation of certain grain inventories

 

(6.0)

 

 

(5.6)

Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items

$

16.4

 

$

(15.0)

 

 

As of August 30, 2020, the net notional value of commodity derivatives was $252.7 million, of which $74.7 million related to energy inputs and $178.0 million related to agricultural inputs. These contracts relate to inputs that generally will be utilized within the next 12 months.

 

In advance of planned debt financing, in the fourth quarter of fiscal 2020, we entered into $300 million of treasury locks due January 13, 2022 with an average fixed rate of 0.85 percent.

 

During the third quarter of fiscal 2020, we entered into a €600 million interest rate swap to convert our €600 million fixed rate notes due January 15, 2026, to a floating rate.

 

During the second quarter of fiscal 2020, we entered into a $500 million interest rate swap to convert a portion of our $850 million floating-rate notes due April 16, 2021, to a fixed rate.

 

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 August 30, 2020, 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.

 

11


 

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 August 30, 2020, $1,337.1 million of our total accounts payable were payable to suppliers who utilize these third party services.

 

(6) Debt

 

The components of notes payable were as follows:

 

In Millions

 

Aug. 30, 2020

 

May 31, 2020

U.S. commercial paper

$

-

$

99.9

Financial institutions

 

162.7

 

179.1

Total

$

162.7

$

279.0

 

To ensure availability of funds, we maintain bank credit lines and have commercial paper programs available to us in the United States and Europe. We also have committed and asset-backed credit lines that support our foreign operations.

 

The following table details the fee-paid committed and uncommitted credit lines we had available as of August 30, 2020:

 

In Billions

 

Facility Amount

 

 

Borrowed Amount

Credit facility expiring:

 

 

 

 

 

May 2022

$

2.7

 

$

-

September 2022

 

0.2

 

 

-

Total committed credit facilities

 

2.9

 

 

-

Uncommitted credit facilities

 

0.7

 

 

0.1

Total committed and uncommitted credit facilities

$

3.6

 

$

0.1

 

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 August 30, 2020.

 

Long-Term Debt

 

The fair values and carrying amounts of long-term debt, including the current portion, were $14,939.7 million and $13,458.6 million, respectively, as of August 30, 2020. 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 the first quarter of fiscal 2021, we issued €500.0 million principal amount of 0.00 percent fixed-rate notes due August 21, 2021. We used the net proceeds, together with cash on hand, to repay €500.0 million of 2.1 percent fixed-rate notes.

 

In the fourth quarter of fiscal 2020, we issued $750 million of 2.875 percent fixed-rate notes due April 15, 2030. We used the net proceeds to repay a portion of our outstanding commercial paper and for general corporate purposes.

 

In the third quarter of fiscal 2020, we issued €600.0 million of 0.45 percent fixed-rate notes due January 15, 2026 and €200.0 million of 0.0 percent fixed-rate notes due November 16, 2020. We used the net proceeds, together with cash on hand, to repay €500.0 million of floating-rate notes and €300.0 million of 0.0 percent fixed-rate notes.

 

In the second quarter of fiscal 2020, we repaid $500.0 million of 2.20 percent fixed-rate notes with proceeds from commercial paper.

 

Certain of our long-term debt agreements contain restrictive covenants. As of August 30, 2020, we were in compliance with all of these covenants.

 

12


 

(7) Redeemable and Noncontrolling Interests

 

We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl. Sodiaal International (Sodiaal) holds the remaining interests in each of the entities. On the acquisition date, we recorded the $904.4 million fair value of Sodiaal’s 49 percent euro-denominated interest in Yoplait SAS as a redeemable interest on our Consolidated Balance Sheets. Sodiaal has the ability to put all or a portion of its redeemable interest to us at fair value once per year, up to three times before December 2024. We adjust the value of the redeemable interest through additional paid-in capital on our Consolidated Balance Sheets quarterly to the redeemable interest’s redemption value, which approximates its fair value. Yoplait SAS pays dividends annually if it meets certain financial metrics set forth in its shareholders’ agreement. As of August 30, 2020, the redemption value of the euro-denominated redeemable interest was $584.9 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 $47.8 million for the quarter ended August 30, 2020, and $67.2 million for the quarter ended August 25, 2019.

 

On the acquisition dates, we recorded the $281.4 million fair value of Sodiaal’s 50 percent euro-denominated interest in Yoplait Marques SNC and 50 percent Canadian dollar-denominated interest in Liberté Marques Sàrl as noncontrolling interests on our Consolidated Balance Sheets. Yoplait Marques SNC earns a royalty stream through a licensing agreement with Yoplait SAS for the rights 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 General Mills Cereals, LLC (GMC) Class A Interests receives quarterly preferred distributions from available net income based on the application of a floating preferred return rate to the holder’s capital account balance established in the most recent mark-to-market valuation (currently $251.5 million). On June 1, 2018, the floating preferred return rate on GMC’s Class A Interests was reset to the sum of three-month LIBOR plus 142.5 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.

 

Our noncontrolling interests contain restrictive covenants. As of August 30, 2020, we were in compliance with all of these covenants.

 

(8) Stockholders’ Equity

 

The following tables provide details of total comprehensive income:

 

 

 

Quarter Ended

 

Quarter Ended

 

 

Aug. 30, 2020

 

Aug. 25, 2019

 

 

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

 

 

 

 

$

638.9

$

0.1

$

7.4

 

 

 

 

$

520.6

$

3.6

$

4.3

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

$

(48.1)

$

47.8

 

(0.3)

 

23.3

 

43.2

$

2.7

$

-

 

2.7

 

(1.5)

 

(4.9)

Other fair value changes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge derivatives

 

(15.5)

 

3.7

 

(11.8)

 

-

 

(0.3)

 

2.4

 

0.7

 

3.1

 

-

 

0.7

Reclassification to earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge derivatives (a)

 

(2.1)

 

0.4

 

(1.7)

 

-

 

-

 

(0.6)

 

-

 

(0.6)

 

-

 

-

Amortization of losses and prior service costs (b)

 

25.3

 

(5.8)

 

19.5

 

-

 

-

 

25.5

 

(5.9)

 

19.6

 

-

 

-

Other comprehensive (loss) income

$

(40.4)

$

46.1

 

5.7

 

23.3

 

42.9

$

30.0

$

(5.2)

 

24.8

 

(1.5)

 

(4.2)

Total comprehensive income

 

 

 

 

$

644.6

$

23.4

$

50.3

 

 

 

 

$

545.4

$

2.1

$

0.1

(a)Gain reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.

(b)Loss reclassified from AOCI into earnings is reported in benefit plan non-service income.

 

Accumulated other comprehensive loss balances, net of tax effects, were as follows:

 

In Millions

 

 

Aug. 30, 2020

 

 

May 31, 2020

Foreign currency translation adjustments

 

$

(889.3)

 

$

(889.0)

Unrealized loss from:

 

 

 

 

 

 

Hedge derivatives

 

 

(26.1)

 

 

(12.6)

Pension, other postretirement, and postemployment benefits:

 

 

 

 

 

 

Net actuarial loss

 

 

(2,002.4)

 

 

(2,022.5)

Prior service credits

 

 

9.1

 

 

9.7

Accumulated other comprehensive loss

 

$

(2,908.7)

 

$

(2,914.4)

13


 

 

(9) 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 12 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2020.

 

Compensation expense related to stock-based payments recognized in the Consolidated Statements of Earnings was as follows:

 

 

 

Quarter Ended

In Millions

 

Aug. 30, 2020

 

Aug. 25, 2019

Compensation expense related to stock-based payments

$

28.3

$

28.8

 

 

 

 

 

 

We recognized windfall tax benefits from stock-based payments in income tax expense in our Consolidated Statements of Earnings of $6.2 million for the first quarter of fiscal 2021 and $6.6 million for the first quarter of fiscal 2020.

 

As of August 30, 2020, unrecognized compensation expense related to non-vested stock options, restricted stock units, and performance share units was $161.4 million. This expense will be recognized over 25 months, on average.

 

Net cash proceeds from the exercise of stock options less shares used for withholding taxes and the intrinsic value of options exercised were as follows:

 

 

 

Quarter Ended

In Millions

 

Aug. 30, 2020

 

 

Aug. 25, 2019

Net cash proceeds

$

30.0

 

$

55.8

Intrinsic value of options exercised

$

18.7

 

$

30.2

 

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 12 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2020.

 

The estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:

 

 

 

Quarter Ended

 

Aug. 30, 2020

Aug. 25, 2019

Estimated fair values of stock options granted

$

8.03

 

$

7.10

 

Assumptions:

 

 

 

 

 

 

Risk-free interest rate

 

0.7

%

 

2.0

%

Expected term

 

8.5

years

 

8.5

years

Expected volatility

 

19.5

%

 

17.4

%

Dividend yield

 

3.3

%

 

3.6

%

 

The total grant date fair value of restricted stock unit awards that vested during the period follows:

 

 

 

Quarter Ended

In Millions

 

Aug. 30, 2020

 

Aug. 25, 2019

Total grant date fair value

 

$62.0

 

$43.8

 

 

 

 

 

 

14


 

(10) Earnings Per Share

 

Basic and diluted earnings per share (EPS) were calculated using the following:

 

 

 

 

Quarter Ended

In Millions, Except per Share Data

 

 

Aug. 30, 2020

 

 

Aug. 25, 2019

Net earnings attributable to General Mills

 

$

638.9

 

$

520.6

Average number of common shares - basic EPS

 

 

614.1

 

 

606.0

Incremental share effect from: (a)

 

 

 

 

 

 

Stock options

 

 

3.2

 

 

3.1

Restricted stock units and performance share units

 

 

2.5

 

 

2.4

Average number of common shares - diluted EPS

 

 

619.8

 

 

611.5

Earnings per share - basic

 

$

1.04

 

$

0.86

Earnings per share - diluted

 

$

1.03

 

$

0.85

 

(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

 

In Millions

 

Aug. 30, 2020

 

Aug. 25, 2019

 

Anti-dilutive stock options, restricted stock units, and performance share units

 

3.1

 

10.1

 

 

 

 

 

 

 

(11) Statements of Cash Flows

 

Our Consolidated Statements of Cash Flows include the following:

 

 

Quarter Ended

In Millions

 

Aug. 30, 2020

 

 

Aug. 25, 2019

Net cash interest payments

$

80.4

 

$

80.6

Net income tax payments

$

76.2

 

$

32.1

 

(12) Retirement and Postemployment Benefits

 

Components of net periodic benefit (income) expense are as follows:

 

 

 

Defined Benefit Pension Plans

 

Other Postretirement

Benefit Plans

 

Postemployment Benefit Plans

 

 

Quarter Ended

 

Quarter Ended

 

Quarter Ended

In Millions

 

Aug. 30, 2020

 

Aug. 25, 2019

 

Aug. 30, 2020

 

Aug. 25, 2019

 

Aug. 30, 2020

 

Aug. 25, 2019

Service cost

$

26.0

$

23.2

$

2.2

$

2.4

$

2.3

$

2.1

Interest cost

 

48.0

 

57.6

 

4.5

 

6.8

 

0.4

 

0.7

Expected return on plan assets

 

(105.0)

 

(112.5)

 

(8.7)

 

(10.5)

 

-

 

-

Amortization of losses (gains)

 

26.8

 

26.7

 

(1.3)

 

(0.5)

 

0.7

 

0.2

Amortization of prior service costs (credits)

 

0.3

 

0.4

 

(1.4)

 

(1.4)

 

0.2

 

0.1

Other adjustments

 

-

 

-

 

-

 

-

 

2.2

 

2.2

Net (income) expense

$

(3.9)

$

(4.6)

$

(4.7)

$

(3.2)

$

5.8

$

5.3

15


 

(13) Income Taxes

 

During the first quarter of fiscal 2020, we reorganized certain wholly owned subsidiaries, including the movement of certain assets between legal entities. As a result of these actions, we recorded a $53.1 million decrease to our deferred income tax liabilities, with a corresponding discrete, non-cash reduction to income taxes in the first quarter of fiscal 2020.

 

(14) Contingencies

During fiscal 2020, we received notice from the tax authorities of the State of São Paulo, Brazil regarding our compliance with its state sales tax requirements. As a result, we have been assessed additional state sales taxes, interest, and penalties. We believe that we have meritorious defenses against this claim and will vigorously defend our position. As of August 30, 2020, we are unable to estimate any possible loss and have not recorded a loss contingency for this matter.

 

(15) Business Segment and Geographic Information

 

We operate in the packaged foods industry. Our operating segments are as follows: North America Retail; Europe & Australia; Pet; Convenience Stores & Foodservice; 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, snack bars, fruit snacks, savory snacks, and a wide variety of organic products including ready-to-eat cereal, frozen and shelf-stable vegetables, meal kits, fruit snacks, snack bars, and refrigerated yogurt.

 

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, snack bars, super-premium ice cream, refrigerated and frozen dough products, shelf stable vegetables, and dessert and baking mixes. Revenues from franchise fees are reported in the region or country where the franchisee is located.

 

Our Pet operating segment includes pet food products sold primarily in the United States in national pet superstore chains, e-commerce retailers, grocery stores, regional pet store chains, mass merchandisers, and veterinary clinics and hospitals. Our product categories include dog and cat food (dry foods, wet foods, and treats) made with whole meats, fruits, and vegetables and other high-quality natural ingredients. Our tailored pet product offerings address specific dietary, lifestyle, and life-stage needs and span different product types, diet types, breed sizes for dogs, lifestages, flavors, product functions and textures, and cuts for wet foods.

 

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, baking mixes, and bakery flour. Many products we sell are branded to the consumer and nearly all are branded to our customers. We sell to distributors and operators in many customer channels including foodservice, convenience stores, vending, and supermarket bakeries in the United States.

 

Our Asia & Latin America operating segment consists of retail and foodservice businesses in the greater Asia and South America regions. Our product categories include super-premium ice cream and frozen desserts, meal kits, dessert and baking mixes, snack bars, salty snacks, refrigerated and frozen dough products, and wellness beverages. 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 and franchise fees are reported in the region or country where the end customer or franchisee is located.

 

Operating profit for these segments excludes unallocated corporate items, gain or loss on divestitures, and restructuring, impairment, and other exit costs. Unallocated corporate items include corporate overhead expenses, variances to planned North American employee benefits and incentives, contributions to the General Mills Foundation, asset and liability remeasurement impact of hyperinflationary economies, restructuring initiative project-related costs, and other items that are not part of our measurement of segment operating performance. These include gains and losses arising from the revaluation of certain grain inventories and gains and losses from mark-to-market valuation of certain commodity positions until passed back to our operating segments. These items affecting operating profit are centrally managed at the corporate level and are excluded from the measure of segment profitability reviewed by executive management. Under our supply chain organization, our manufacturing, warehouse, and distribution activities are substantially integrated across our operations in order to maximize efficiency and productivity. As a result, fixed assets and depreciation and amortization expenses are neither maintained nor available by operating segment.

 

16


 

Our operating segment results were as follows:

 

 

 

Quarter Ended

In Millions

 

Aug. 30, 2020

 

 

Aug. 25, 2019

Net sales:

 

 

 

 

 

North America Retail

$

2,707.0

 

$

2,376.1

Europe & Australia

 

491.0

 

 

454.1

Pet

 

391.7

 

 

367.8

Convenience Stores & Foodservice

 

391.6

 

 

445.0

Asia & Latin America

 

382.7

 

 

359.5

Total

$

4,364.0

 

$

4,002.5

Operating profit:

 

 

 

 

 

North America Retail

$

695.4

 

$

559.9

Europe & Australia

 

53.2

 

 

27.6

Pet

 

90.3

 

 

80.9

Convenience Stores & Foodservice

 

69.6

 

 

91.1

Asia & Latin America

 

20.1

 

 

10.1

Total segment operating profit

$

928.6

 

$

769.6

Unallocated corporate items

 

74.4

 

 

99.0

Restructuring, impairment, and other exit costs

 

0.5

 

 

8.2

Operating profit

$

853.7

 

$

662.4

 

Net sales for our North America Retail operating units were as follows:

 

 

 

Quarter Ended

In Millions

 

Aug. 30, 2020

 

 

Aug. 25, 2019

U.S. Meals & Baking

$

1,091.5

 

$

830.6

U.S. Cereal

 

650.7

 

 

589.9

U.S. Snacks

 

519.1

 

 

528.2

U.S. Yogurt and Other

 

231.1

 

 

219.2

Canada

 

214.6

 

 

208.2

Total

$

2,707.0

 

$

2,376.1

 

 

17


 

Net sales by class of similar products were as follows:

 

Quarter Ended

In Millions

 

Aug. 30, 2020

 

 

Aug. 25, 2019

Snacks

$

891.7

 

$

869.4

Cereal

 

751.9

 

 

685.5

Convenient meals

 

729.6

 

 

569.2

Yogurt

 

488.0

 

 

495.2

Baking mixes and ingredients

 

398.0

 

 

355.7

Pet

 

391.7

 

 

367.8

Dough

 

384.3

 

 

330.6

Super-premium ice cream

 

232.9

 

 

227.2

Other

 

95.9

 

 

101.9

Total

$

4,364.0

 

$

4,002.5

18


 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

 

INTRODUCTION

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2020 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.

 

As the COVID-19 pandemic continues, we expect the largest factor impacting our fiscal 2021 performance will be the relative balance of at-home versus away-from-home consumer food demand. At-home food demand has remained elevated relative to pre-pandemic levels, though it has moderated from the fourth quarter of fiscal 2020. We will continue to evaluate the nature and extent of the impact to our business and consolidated results of operations.

 

CONSOLIDATED RESULTS OF OPERATIONS

 

First Quarter Results

 

In the first quarter of fiscal 2021, net sales increased 9 percent and organic net sales increased 10 percent compared to the same period last year. Operating profit margin of 19.6 percent increased 310 basis points, primarily driven by favorable net price realization and mix, a larger increase in net sales as compared to the increase in selling, general, and administrative (SG&A) expenses, and a favorable change to the mark-to-market valuation of certain commodity positions and grain inventories. Adjusted operating profit margin increased 210 basis points to 19.1 percent compared to the same period last year, primarily driven by favorable net price realization and mix and a larger increase in net sales as compared to the increase in SG&A expenses. Diluted earnings per share of $1.03 increased 21 percent in the first quarter of fiscal 2021. Adjusted diluted earnings per share of $1.00 increased 27 percent on a constant-currency basis compared to the first quarter of fiscal 2020. 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 first quarter of fiscal 2021 follows:

Quarter Ended Aug. 30, 2020

In millions, except per share

 

Quarter Ended

Aug. 30, 2020 vs. Aug. 25, 2019

Percent

of Net

Sales

Constant-Currency Growth (a)

Net sales

$

4,364.0

 

9

%

 

 

 

 

Operating profit

 

853.7

 

29

%

19.6

%

 

 

Net earnings attributable to General Mills

 

638.9

 

23

%

 

 

 

 

Diluted earnings per share

$

1.03

 

21

%

 

 

 

 

Organic net sales growth rate (a)

 

 

 

10

%

 

 

 

 

Adjusted operating profit (a)

 

832.5

 

22

%

19.1

%

22

%

Adjusted diluted earnings per share (a)

$

1.00

 

27

%

 

 

27

%

(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

 

Aug. 30, 2020

 

Aug. 30, 2020 vs Aug. 25, 2019

Aug. 25, 2019

Net sales (in millions)

$

4,364.0

 

9%

 

$

4,002.5

Contributions from volume growth (a)

 

 

 

8

pts

 

 

Net price realization and mix

 

 

 

2

pts

 

 

Foreign currency exchange

 

 

 

(1)

pt

 

 

Note: Table may not foot due to rounding.

 

 

 

 

 

 

 

(a) Measured in tons based on the stated weight of our product shipments.

 

 

 

 

The 9 percent increase in net sales in the first quarter of fiscal 2021 reflects increased contributions from volume growth and favorable net price realization and mix, partially offset by unfavorable foreign currency exchange.

 

19


 

Components of organic net sales growth are shown in the following table:

 

Quarter Ended Aug. 30, 2020 vs.

 

 

Quarter Ended Aug. 25, 2019

 

 

Contributions from organic volume growth (a)

 

8 pts

Organic net price realization and mix

 

2 pts

Organic net sales growth

 

10 pts

Foreign currency exchange

 

(1)pt

Net sales growth

 

9 pts

Note: Table may not foot due to rounding.

 

 

(a) Measured in tons based on the stated weight of our product shipments.

 

 

Organic net sales increased 10 percent in the first quarter of fiscal 2021 primarily driven by increased contributions from organic volume growth and favorable organic net price realization and mix.

 

Cost of sales increased $161 million to $2,774 million in the first quarter of fiscal 2021 compared to the same period in fiscal 2020. The increase was primarily driven by a $198 million increase due to higher volume, partially offset by a $7 million decrease attributable to product rate and mix. We recorded a $16 million net decrease in cost of sales related to the mark-to-market valuation of certain commodity positions and grain inventories in the first quarter of fiscal 2021 compared to a net increase of $15 million in the first quarter of fiscal 2020. In the first quarter of fiscal 2021, we recorded a $7 million charge related to a product recall in our international Green Giant business. In addition, we recorded an insignificant amount of restructuring charges in cost of sales in the first quarter of fiscal 2021 compared to $6 million in the first quarter of fiscal 2020 (please refer to Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report).

 

SG&A expenses increased $17 million to $736 million in the first quarter of fiscal 2021 compared to the same period in fiscal 2020, primarily reflecting increased other consumer-related expenses and increased media and advertising expenses, partially offset by lower administrative expenses. SG&A expenses as a percent of net sales in the first quarter of fiscal 2021 decreased 110 basis points compared to the first quarter of fiscal 2020.

 

Restructuring, impairment, and other exit costs were insignificant in the first quarter of fiscal 2021 compared to $8 million in the same period last year.

 

Benefit plan non-service income totaled $33 million in the first quarter of fiscal 2021 compared to $30 million in the same period last year, primarily reflecting lower interest costs, partially offset by lower expected return on plan assets.

 

Interest, net for the first quarter of fiscal 2021 totaled $111 million, down $8 million from the first quarter of fiscal 2020, primarily driven by lower average debt levels, partially offset by a change in the mix of debt.

 

The effective tax rate for the first quarter of fiscal 2021 was 22.0 percent compared to 11.7 percent for the first quarter of fiscal 2020. The 10.3 percentage point increase was primarily due to nonrecurring net benefits related to a reorganization of certain wholly owned subsidiaries and certain international discrete tax benefits recorded in the first quarter of fiscal 2020, partially offset by changes in earnings mix by jurisdiction in fiscal 2021. Our adjusted effective tax rate was 21.9 percent in the first quarter of fiscal 2021 compared to 20.9 percent in the first quarter of fiscal 2020 (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The 1 percentage point increase in the adjusted effective tax rate was primarily due to certain nonrecurring international discrete tax benefits recorded in the first quarter of fiscal 2020, partially offset by changes in earnings mix by jurisdiction in fiscal 2021.

20


 

After-tax earnings from joint ventures for the first quarter of fiscal 2021 increased to $41 million compared to $22 million in the same period in fiscal 2020, primarily driven by higher net sales and lower input costs at Cereal Partners Worldwide (CPW). On a constant-currency basis, after-tax earnings from joint ventures increased 88 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 Aug. 30, 2020 vs.

 

 

 

 

 

 

 

Quarter Ended Aug. 25, 2019

 

CPW

HDJ (a)

Total

Contributions from volume growth (b)

 

7

pts

(6)

pts

 

 

Net price realization and mix

 

2

pts

5

pts

 

 

Net sales growth in constant currency

 

9

pts

(1)

pt

7

pts

Foreign currency exchange

 

(4)

pts

1

pt

(3)

pts

Net sales growth

 

5

pts

Flat

 

4

pts

Note: Table may not foot due to rounding.

 

 

 

 

 

 

 

(a) Häagen-Dazs Japan, Inc. (HDJ)

 

 

 

 

 

 

 

(b) Measured in tons based on the stated weight of our product shipments.

 

 

 

 

 

 

 

 

Average diluted shares outstanding increased by 8 million in the first quarter of fiscal 2021 from the same period a year ago due to option exercises.

 

 

SEGMENT OPERATING RESULTS

 

Our businesses are organized into five operating segments: North America Retail; Europe & Australia; Pet; Convenience Stores & Foodservice; and Asia & Latin America. Please refer to Note 15 of the Consolidated Financial Statements in Part I, Item 1 of this report for a description of our operating segments.

 

North America Retail Segment Results

 

North America Retail net sales were as follows:

 

 

Quarter Ended

 

Aug. 30, 2020

 

Aug. 30, 2020 vs Aug. 25, 2019

Aug. 25, 2019

Net sales (in millions)

$

2,707.0

 

14

%

$

2,376.1

Contributions from volume growth (a)

 

 

 

17

pts

 

 

Net price realization and mix

 

 

 

(2)

pts

 

 

Foreign currency exchange

 

 

 

Flat

 

 

 

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

 

North America Retail net sales increased 14 percent in the first quarter of fiscal 2021 compared to the same period in fiscal 2020, driven by an increase in contributions from volume growth, partially offset by unfavorable net price realization and mix.

 

The components of North America Retail organic net sales growth are shown in the following table:

 

 

 

 

 

 

 

Quarter Ended

 

 

Aug. 30, 2020

Contributions from organic volume growth (a)

 

17

pts

Organic net price realization and mix

 

(2)

pts

Organic net sales growth

 

14

pts

Foreign currency exchange

 

Flat

 

Net sales growth

 

14

pts

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

 

21


 

North America Retail organic net sales increased 14 percent in the first quarter of fiscal 2021 compared to the same period in fiscal 2020, driven by an increase in contributions from organic volume growth, partially offset by unfavorable organic net price realization and mix.

 

North America Retail net sales percentage change by operating unit are shown in the following table:

 

 

Quarter Ended

 

Aug. 30, 2020

U.S. Meals & Baking

31

%

U.S. Cereal

10

 

U.S. Yogurt and Other

5

 

U.S. Snacks

(2)

 

Canada (a)

3

 

Total

14

%

(a) On a constant-currency basis, Canada net sales increased 5 percent for the first quarter of fiscal 2021 compared to the same period in fiscal 2020. See the "Non-GAAP Measures" section below for our use of this measure not defined by GAAP.

 

Segment operating profit increased 24 percent to $695 million in the first quarter of fiscal 2021 compared to $560 million in the same period in fiscal 2020, primarily driven by an increase in contributions from volume growth and lower input costs, partially offset by unfavorable net price realization and mix and higher SG&A expenses, including increased media and advertising expenses. Segment operating profit increased 24 percent on a constant-currency basis in the first quarter of fiscal 2021 compared to the same period in fiscal 2020 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).

 

 

Europe & Australia Segment Results

 

Europe & Australia net sales were as follows:

 

 

 

 

Quarter Ended

 

 

Aug. 30, 2020

 

Aug. 30, 2020 vs. Aug. 25, 2019

 

Aug. 25, 2019

Net sales (in millions)

$