UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

FOR THE QUARTERLY PERIOD ENDED November 26, 201725, 2018

FOR THE TRANSITION PERIOD FROM    TO    TO  

Commission file number:001-01185

GENERAL MILLS, INC.

(Exact name of registrant as specified in its charter)

(763)764-7600

(Registrant’s telephone number, including area code)

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 ☒☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act.

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 Rule12b-2 of the Exchange Act).

Yes ☐ No ☒☑

Number of shares of Common Stock outstanding as of December 11, 2017: 569,043,7897, 2018: 596,748,917 (excluding 185,569,539157,864,411 shares held in the treasury).

General Mills, Inc.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.         Financial Statements

Consolidated Statements of Earnings

GENERAL MILLS, INC. AND SUBSIDIARIES

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

See accompanying notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions)

See accompanying notes to consolidated financial statements.

Consolidated Balance Sheets

GENERAL MILLS, INC. AND SUBSIDIARIES

(In Millions, Except Par Value)

See accompanying notes to consolidated financial statements.

Consolidated Statements of Total Equity and Redeemable Interest

GENERAL MILLS, INC. AND SUBSIDIARIES

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

See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions)

See accompanying notes to consolidated financial statements.

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 Form10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature, including the elimination of all intercompany transactions and any noncontrolling and redeemable interests’ share of those transactions. Operating results for the quarter ended November 26, 201725, 2018, are not necessarily indicative of the results that may be expected for the fiscal year ending May 27, 2018.26, 2019.

These statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in our Annual Report on Form10-K for the fiscal year ended May 28, 2017.27, 2018. 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 Form10-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 162019 related to the Consolidated Financial Statements in Part I, Item 1presentation of this reportnet periodic defined benefit pension expense, net periodic postretirement benefit expense, and net periodic postemployment benefit expense and to revenue recognition. Please see Note 17 for additional information. Certain terms used throughout this report are defined in the “Glossary” section below.

(2) Acquisition

During the fourth quarter of fiscal 2018, we acquired Blue Buffalo Pet Products, Inc. (“Blue Buffalo”) for an aggregate purchase price of $8.0 billion, including $103.0 million of consideration for net debt repaid at the time of the acquisition. In accordance with the definitive agreement and plan of merger, a subsidiary of General Mills merged into Blue Buffalo, with Blue Buffalo surviving the merger as a wholly owned subsidiary of General Mills. In accordance with the merger agreement, equity holders of Blue Buffalo received $40.00 per share in cash. We financed the transaction with a combination of $6.0 billion in debt, $1.0 billion in equity, and cash on hand. In the quarter andsix-month periods ended November 25, 2018, we recorded acquisition integration costs of $6.8 million and $15.5 million respectively, in selling, general, and administrative (SG&A) expenses.

We consolidated Blue Buffalo into our Consolidated Balance Sheets and recorded goodwill of $5.3 billion, an indefinite-lived intangible asset for the Blue Buffalo brand of $2.7 billion, and a finite-lived customer relationship asset of $269.0 million. The goodwill was primarily attributable to future growth opportunities and any intangible assets that did not qualify for separate recognition. The goodwill is included in the Pet reporting unit and is not deductible for tax purposes. We have conducted a preliminary assessment of certain assets and liabilities related to the acquisition of Blue Buffalo, and we are continuing our review of these items during the measurement period. If new information is obtained about facts and circumstances that existed at the acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to current estimates of these items.

The results of Blue Buffalo are reported in our Pet operating segment on aone-month lag.

(3) Restructuring, Impairment, and Other Exit Costs

Restructuring and impairment charges were as follows:

In the second quarter of fiscal 2018,2019, we recorded an adjustment$192.6 million of charges related to a prior year which increased income tax expensethe impairment of ourProgresso,Food Should Taste Good and total liabilities by $42.2 millionMountain Highbrand intangible assets in our Consolidated Financial Statements. We determined the adjustment to be immaterial to our estimated Consolidated Statements of Earningsrestructuring, impairment, and other exit costs. Please see Note 4 for the fiscal year ended May 27, 2018.additional information.

During the second quarter of fiscal 2017,2019, we sold our Martel, Ohio manufacturing facilityrecorded a $13.2 million charge in our Convenience Stores & Foodservice segmentrestructuring, impairment, and simultaneously entered into aco-packing arrangement with the purchaser. We received $17.5 million in cash, and recorded apre-tax loss of $13.5 million.

(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. Chargesother exit costs related to these activities were as follows:the impairment of certain manufacturing assets within our North America Retail segment.

In the thirdsix-month period ended November 25, 2018, we did not undertake any new restructuring actions. We recorded $3.6 million of charges for previously announced restructuring actions in the second quarter of fiscal 2017, we approved restructuring actions designed2019 and $2.4 million in thesix-month period ended November 25, 2018, compared to better align our organizational structure with our strategic initiatives. This action will affect approximately 600 positions and we expect to incur approximately $76$2.2 million of net expenses relating to these actions, all of which will be cash. We recorded $0.6 million of restructuring charges in the second quarter of fiscal 2018 and $1.4 million in thesix-month period ended November 26, 2017 relating to these actions. We expect these actions to be completed by the end of fiscal 2018.

In the second quarter of fiscal 2017, we notified the employees and their representatives of our decision to close our pasta manufacturing facility in Melbourne, Australia in our Europe & Australia segment to improve our margin structure. This action will affect approximately 350 positions, and we expect to incur approximately $34 million of net expenses relating to this action, of which approximately $3 million will be cash. We recorded $2.8 million of restructuring charges in the second quarter of fiscal 2018 and $4.9 million in thesix-month period ended November 26, 2017 relating to this action. We recorded $12.0 million of restructuring charges in the second quarter of fiscal 2017 and $12.0 million in thesix-month period ended November 27, 2016. We expect this action to be completed by the end of fiscal 2019.

In the first quarter of fiscal 2017, we announced a plan to restructure certain product lines in our Asia & Latin America segment. To eliminate excess capacity, we closed our snacks manufacturing facility in Marília, Brazil and ceased production operations for meals and snacks at our facility in São Bernardo do Campo, Brazil. We also ceased production of certain underperforming snack products at our facility in Nanjing, China. These and other actions will affect approximately 420 positions in our Brazilian operations and approximately 440 positions in our greater China operations. We expect to incur approximately $42 million of net expenses related to these actions, most of which will benon-cash. There have been no restructuring charges in fiscal 2018 relating to these actions. We recorded $6.9 million of restructuring charges in the second quarter of fiscal 2017 and $43.3 million in thesix-month period ended November 27, 2016. 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 a net gain of $1.3 million primarily related to the sale of assets in the second quarter of fiscal 2018 and $12.1 million of restructuring charges in thesix-month period ended November 26, 2017. We recorded $7.0 million of restructuring expenses in the second quarter of fiscal 2017 and $27.9 million in thesix-month period ended November 27, 2016. We expect this action to be completed by the end of fiscal 2018.

During thesix-month period ended November 26, 2017, we paid $27.1 million in cash relating to restructuring initiatives and $43.3 million in thesix-month period ended November 27, 2016.

In addition to restructuring charges, we recorded $4.2 million of project-related costs in cost of sales in the second quarter of fiscal 2018 and $5.4$19.7 million in thesix-month period ended November 26, 2017. We paid $5.0$29.2 million in cash relating to these actions in thesix-month period ended November 25, 2018, compared to $27.1 million in thesix-month period ended November 26, 2017. These restructuring actions are expected to be completed by the end of fiscal 2020.

We paid $0.3 million in cash in thesix-month period ended November 26, 201725, 2018, for project-related costs. We expectcosts compared to incur approximately $8$5.0 million in the same period of project-related costs in future periods related to our restructuring initiatives.fiscal 2018.

Restructuring and impairment charges and project-related costs are recorded in our Consolidated Statements of Earnings as follows:

The roll forward of our restructuring and other exit cost reserves, included in other current liabilities, is as follows:

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 thewrite-off of spare parts) and other periodic exit costs are recognized as incurred, as those items are not reflected in our restructuring and other exit cost reserves on our Consolidated Balance Sheets.

(4) Goodwill and Other Intangible Assets

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

Based on the carrying value of finite-lived intangible assets as of November 26, 2017,25, 2018, annual amortization expense for each of the next five fiscal years is estimated to be approximately $27$40 million.

During the thirdfourth quarter of fiscal 2017,2018, we announced a new global organization structure to streamlineacquired Blue Buffalo, which became our leadership, enhance global scale, and drive improved operational agility to maximize our growth capabilities. As a result of this global reorganization, we reassessed our operating segments as well as our reporting units. Under our new organization structure, our chief operating decision maker assesses performance and makes decisions about resources to be allocated to our segments at the North America Retail, Convenience Stores & Foodservice, Europe & Australia, and Asia & Latin AmericaPet operating segment level. See Note 15 for additional information on our operating segments. Our reporting units were unchanged with the exceptionand we recorded $5.3 billion of combining our former U.S. Mealsgoodwill, $2.7 billion related to an indefinite-lived brand intangible asset, and U.S. Baking reporting units into$269.0 million related to a single reporting unit.customer relationships intangible asset.

The changes in the carrying amount of goodwill during fiscal 20182019 were as follows:

The changes in the carrying amount of other intangible assets during fiscal 20182019 were as follows:

OurWe performed our annual goodwill and indefinite-lived intangible assets impairment test was performed onas of the first day of the second quarter of fiscal 20182019. As a result of lower sales projections in our long-range plans for the businesses supporting theProgresso,Food Should Taste Good, and we determined there was no impairment of ourMountain Highbrand intangible assets, as their relatedwe recorded the following impairment charges:

Significant assumptions used in that assessment included our long-range cash flow projections for the businesses, royalty rates, weighted average cost of capital rates, and tax rates.

All other intangible asset fair values were substantially in excess of the carrying values, except for theYoki andProgresso brand intangible assets and the Latin America reporting unit.

unit and theYokibrand intangible asset. The excess fair value as of the fiscal 20182019 test date of theYoki andProgresso brand intangible assets and the Latin America reporting unit isand theYoki brand intangible asset were as follows:

In addition, whileWhile having significant coverage as of our fiscal 20182019 assessment date, the FoodShouldTasteGood andGreenGiantPillsbury brand intangible assetsasset 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:

(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, andover-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, certainthese 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 theany resultingmark-to-market volatility, which remains in unallocated corporate items.

Unallocated corporate items for the quarters andsix-month periods ended November 25, 2018 and November 26, 2017 and November 27, 2016 included: