UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED February |
| ☐ | 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)
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.
Large 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 Rule12b-2 of the Exchange Act).
Yes ☐ No ☑
Number of shares of Common Stock outstanding as of March 12, 2018: 570,162,72411, 2019: 598,790,681 (excluding 184,450,604155,822,647 shares held in the treasury).
General Mills, Inc.
2
| 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 | Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||
| Feb. 25, 2018 | Feb. 26, 2017 | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | |||||||||||||||||||||||||
Net sales | $ | 3,882.3 | $ | 3,793.2 | $ | 11,850.2 | $ | 11,813.2 | $ | 4,198.3 | $ | 3,882.3 | $ | 12,703.5 | $ | 11,850.2 | ||||||||||||||||
Cost of sales | 2,627.0 | 2,485.5 | 7,841.8 | 7,569.1 | 2,755.3 | 2,625.8 | 8,408.0 | 7,834.2 | ||||||||||||||||||||||||
Selling, general, and administrative expenses | 655.1 | 687.6 | 2,045.8 | 2,107.9 | 696.6 | 679.5 | 2,192.6 | 2,117.9 | ||||||||||||||||||||||||
Divestiture loss | - | - | - | 13.5 | 35.4 | - | 35.4 | - | ||||||||||||||||||||||||
Restructuring, impairment, and other exit costs | 7.5 | 77.6 | 14.3 | 165.5 | 59.7 | 7.5 | 267.7 | 14.3 | ||||||||||||||||||||||||
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Operating profit | 592.7 | 542.5 | 1,948.3 | 1,957.2 | 651.3 | 569.5 | 1,799.8 | 1,883.8 | ||||||||||||||||||||||||
Benefit plannon-service income | (21.4) | (23.2) | (63.3) | (64.5) | ||||||||||||||||||||||||||||
Interest, net | 89.3 | 76.4 | 236.6 | 225.8 | 130.8 | 89.3 | 397.0 | 236.6 | ||||||||||||||||||||||||
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Earnings before income taxes andafter-tax earnings from joint ventures | 503.4 | 466.1 | 1,711.7 | 1,731.4 | 541.9 | 503.4 | 1,466.1 | 1,711.7 | ||||||||||||||||||||||||
Income taxes | (432.5 | ) | 107.0 | (29.1 | ) | 511.0 | 95.8 | (432.5) | 313.1 | (29.1) | ||||||||||||||||||||||
After-tax earnings from joint ventures | 16.6 | 11.1 | 64.1 | 65.1 | 11.8 | 16.6 | 52.0 | 64.1 | ||||||||||||||||||||||||
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Net earnings, including earnings attributable to redeemable and noncontrolling interests | 952.5 | 370.2 | 1,804.9 | 1,285.5 | 457.9 | 952.5 | 1,205.0 | 1,804.9 | ||||||||||||||||||||||||
Net earnings attributable to redeemable and noncontrolling interests | 11.1 | 12.4 | 28.3 | 36.9 | 11.1 | 11.1 | 22.5 | 28.3 | ||||||||||||||||||||||||
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Net earnings attributable to General Mills | $ | 941.4 | $ | 357.8 | $ | 1,776.6 | $ | 1,248.6 | $ | 446.8 | $ | 941.4 | $ | 1,182.5 | $ | 1,776.6 | ||||||||||||||||
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Earnings per share - basic | $ | 1.64 | $ | 0.62 | $ | 3.10 | $ | 2.12 | $ | 0.74 | $ | 1.64 | $ | 1.97 | $ | 3.10 | ||||||||||||||||
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Earnings per share - diluted | $ | 1.62 | $ | 0.61 | $ | 3.05 | $ | 2.08 | $ | 0.74 | $ | 1.62 | $ | 1.96 | $ | 3.05 | ||||||||||||||||
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Dividends per share | $ | 0.49 | $ | 0.48 | $ | 1.47 | $ | 1.44 | $ | 0.49 | $ | 0.49 | $ | 1.47 | $ | 1.47 | ||||||||||||||||
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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 | Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||
| Feb. 25, 2018 | Feb. 26, 2017 | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | |||||||||||||||||||||||||
Net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 952.5 | $ | 370.2 | $ | 1,804.9 | $ | 1,285.5 | $ | 457.9 | $ | 952.5 | $ | 1,205.0 | $ | 1,804.9 | ||||||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||||||||
Foreign currency translation | 23.5 | 113.7 | 43.0 | 88.4 | 48.7 | 23.5 | (20.1) | 43.0 | ||||||||||||||||||||||||
Other fair value changes: | ||||||||||||||||||||||||||||||||
Securities | 0.6 | 0.5 | 1.4 | 0.8 | - | 0.6 | - | 1.4 | ||||||||||||||||||||||||
Hedge derivatives | (6.7 | ) | (4.9 | ) | (15.6 | ) | 42.4 | (7.7) | (6.7) | 1.5 | (15.6) | |||||||||||||||||||||
Reclassification to earnings: | ||||||||||||||||||||||||||||||||
Securities | - | - | (2.0) | - | ||||||||||||||||||||||||||||
Hedge derivatives | 2.8 | (8.7 | ) | 3.4 | (19.3 | ) | (1.2) | 2.8 | (0.5) | 3.4 | ||||||||||||||||||||||
Amortization of losses and prior service costs | 30.7 | 29.9 | 86.4 | 92.3 | 21.0 | 30.7 | 63.5 | 86.4 | ||||||||||||||||||||||||
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Other comprehensive income, net of tax | 50.9 | 130.5 | 118.6 | 204.6 | 60.8 | 50.9 | 42.4 | 118.6 | ||||||||||||||||||||||||
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Total comprehensive income | 1,003.4 | 500.7 | 1,923.5 | 1,490.1 | 518.7 | 1,003.4 | 1,247.4 | 1,923.5 | ||||||||||||||||||||||||
Comprehensive income (loss) attributable to redeemable and noncontrolling interests | 40.7 | 16.4 | 125.5 | (20.3 | ) | 13.0 | 40.7 | (3.8) | 125.5 | |||||||||||||||||||||||
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Comprehensive income attributable to General Mills | $ | 962.7 | $ | 484.3 | $ | 1,798.0 | $ | 1,510.4 | $ | 505.7 | $ | 962.7 | $ | 1,251.2 | $ | 1,798.0 | ||||||||||||||||
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See accompanying notes to consolidated financial statements.
4
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except Par Value)
| Feb. 25, 2018 | May 28, 2017 | Feb. 24, 2019 | May 27, 2018 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 953.1 | $ | 766.1 | $ | 547.1 | $ | 399.0 | ||||||||
Receivables | 1,496.5 | 1,430.1 | 1,704.1 | 1,684.2 | ||||||||||||
Inventories | 1,452.5 | 1,483.6 | 1,544.5 | 1,642.2 | ||||||||||||
Prepaid expenses and other current assets | 375.0 | 381.6 | 374.1 | 398.3 | ||||||||||||
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Total current assets | 4,277.1 | 4,061.4 | 4,169.8 | 4,123.7 | ||||||||||||
Land, buildings, and equipment | 3,626.2 | 3,687.7 | 3,822.9 | 4,047.2 | ||||||||||||
Goodwill | 8,867.3 | 8,747.2 | 14,025.8 | 14,065.0 | ||||||||||||
Other intangible assets | 4,604.1 | 4,530.4 | 7,195.7 | 7,445.1 | ||||||||||||
Other assets | 865.9 | 785.9 | 1,071.6 | 943.0 | ||||||||||||
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Total assets | $ | 22,240.6 | $ | 21,812.6 | $ | 30,285.8 | $ | 30,624.0 | ||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 2,505.7 | $ | 2,119.8 | $ | 2,750.5 | $ | 2,746.2 | ||||||||
Current portion of long-term debt | 1,250.5 | 604.7 | 1,407.2 | 1,600.1 | ||||||||||||
Notes payable | 1,210.8 | 1,234.1 | 1,971.3 | 1,549.8 | ||||||||||||
Other current liabilities | 1,242.6 | 1,372.2 | 1,387.6 | 1,445.8 | ||||||||||||
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Total current liabilities | 6,209.6 | 5,330.8 | 7,516.6 | 7,341.9 | ||||||||||||
Long-term debt | 7,163.6 | 7,642.9 | 11,642.6 | 12,668.7 | ||||||||||||
Deferred income taxes | 1,233.9 | 1,719.4 | 2,046.9 | 2,003.8 | ||||||||||||
Other liabilities | 1,481.3 | 1,523.1 | 1,281.4 | 1,341.0 | ||||||||||||
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Total liabilities | 16,088.4 | 16,216.2 | 22,487.5 | 23,355.4 | ||||||||||||
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Redeemable interest | 817.5 | 910.9 | 548.9 | 776.2 | ||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock, 754.6 shares issued, $0.10 par value | 75.5 | 75.5 | 75.5 | 75.5 | ||||||||||||
Additionalpaid-in capital | 1,235.0 | 1,120.9 | 1,414.2 | 1,202.5 | ||||||||||||
Retained earnings | 14,398.4 | 13,138.9 | 14,724.5 | 14,459.6 | ||||||||||||
Common stock in treasury, at cost, shares of 184.5 and 177.7 | (8,190.8 | ) | (7,762.9 | ) | ||||||||||||
Common stock in treasury, at cost, shares of 156.0 and 161.5 | (6,923.5) | (7,167.5) | ||||||||||||||
Accumulated other comprehensive loss | (2,552.5 | ) | (2,244.5 | ) | (2,360.3) | (2,429.0) | ||||||||||
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Total stockholders’ equity | 4,965.6 | 4,327.9 | 6,930.4 | 6,141.1 | ||||||||||||
Noncontrolling interests | 369.1 | 357.6 | 319.0 | 351.3 | ||||||||||||
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Total equity | 5,334.7 | 4,685.5 | 7,249.4 | 6,492.4 | ||||||||||||
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Total liabilities and equity | $ | 22,240.6 | $ | 21,812.6 | $ | 30,285.8 | $ | 30,624.0 | ||||||||
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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)
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$.10 Par Value Common Stock | $.10 Par Value Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (One Billion Shares Authorized) | (One Billion Shares Authorized) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issued | Treasury | Issued | Treasury | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Amount | Additional Paid-In Capital | Shares | Amount | Retained Earnings | Accumulated Other | Non- controlling | Total Equity | Redeemable Interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Amount | Additional Paid-In Capital | Shares | Amount | Retained Earnings | Accumulated Other | Non- controlling | Total Equity | Redeemable Interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of May 27, 2018 | 754.6 | $ | 75.5 | $ | 1,202.5 | (161.5 | ) | $ | (7,167.5 | ) | $ | 14,459.6 | $ | (2,429.0 | ) | $ | 351.3 | $ | 6,492.4 | $ | 776.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 (loss) | 392.3 | (70.2 | ) | 1.8 | 323.9 | (6.6 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.49 per share) | (294.2 | ) | (294.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares purchased | (25.4 | ) | (1,651.5 | ) | (1,651.5 | ) | - | (0.2 | ) | (0.2 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation plans (includes income tax benefits of $64.1) | 3.6 | 5.5 | 215.2 | 218.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation plans | (2.5 | ) | 3.0 | 131.8 | 129.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unearned compensation related to restricted stock unit awards | (78.5 | ) | (78.5 | ) | (65.2 | ) | (65.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earned compensation | 94.9 | 94.9 | 28.1 | 28.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase in redemption value of redeemable interest | (75.9 | ) | (75.9 | ) | 75.9 | (2.0 | ) | (2.0 | ) | 2.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of interest in subsidiary | (0.2 | ) | 0.1 | (0.1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling and redeemable interest holders | (2.4 | ) | (2.4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adoption of revenue recognition accounting requirements | (33.9 | ) | (33.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of August 26, 2018 | 754.6 | 75.5 | 1,160.9 | (158.5 | ) | (7,035.9 | ) | 14,523.8 | (2,499.2 | ) | 350.7 | 6,575.8 | 771.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | 343.4 | 80.0 | (3.2 | ) | 420.2 | (8.8 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.49 per share) | (295.0 | ) | (295.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares purchased | - | (0.1 | ) | (0.1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation plans | (13.0 | ) | 0.6 | 26.3 | 13.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unearned compensation related to restricted stock unit awards | (1.5 | ) | (1.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earned compensation | 15.7 | 15.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase in investment in redeemable interest | - | 55.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Decrease in redemption value of redeemable interest | 270.9 | 270.9 | (270.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling and redeemable interest holders | (33.2 | ) | (33.2 | ) | (27.8 | ) | (19.9 | ) | (19.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of Nov. 25, 2018 | 754.6 | 75.5 | 1,433.0 | (157.9 | ) | (7,009.7 | ) | 14,572.2 | (2,419.2 | ) | 327.6 | 6,979.4 | 547.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | 1,776.6 | 21.4 | 41.2 | 1,839.2 | 84.3 | 446.8 | 58.9 | 2.6 | 508.3 | 10.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($1.47 per share) | (846.5 | ) | (846.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.49 per share) | (294.5 | ) | (294.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares purchased | (10.9 | ) | (601.2 | ) | (601.2 | ) | – | (0.4 | ) | (0.4 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation plans (includes income tax benefits of $26.8) | (49.1 | ) | 4.1 | 173.3 | 124.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation plans | (43.9 | ) | 1.9 | 86.6 | 42.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unearned compensation related to restricted stock unit awards | (58.2 | ) | (58.2 | ) | (4.9 | ) | (4.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earned compensation | 62.3 | 62.3 | 20.9 | 20.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Decrease in redemption value of redeemable interest | 159.1 | 159.1 | (159.1 | ) | 9.1 | 9.1 | (9.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling and redeemable interest holders | (29.7 | ) | (29.7 | ) | (18.6 | ) | (11.2 | ) | (11.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of Feb. 24, 2019 | 754.6 | $ | 75.5 | $ | 1,414.2 | (156.0 | ) | $ | (6,923.5 | ) | $ | 14,724.5 | $ | (2,360.3 | ) | $ | 319.0 | $ | 7,249.4 | $ | 548.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements. | See accompanying notes to consolidated financial statements. |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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)
| ||||||||||||||||||||||||||||||||||||||||
| $.10 Par Value Common Stock | ||||||||||||||||||||||||||||||||||||||||
| (One Billion Shares Authorized) | �� | |||||||||||||||||||||||||||||||||||||||
| Issued | Treasury | |||||||||||||||||||||||||||||||||||||||
| Shares | Par Amount | Additional Paid-In Capital | Shares | Amount | Retained Earnings | Accumulated Other | Non- controlling | Total Equity | Redeemable Interest | |||||||||||||||||||||||||||||||
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 | 404.7 | 12.5 | 23.0 | 440.2 | 49.0 | |||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.49 per share) | (284.3 | ) | (284.3 | ) | ||||||||||||||||||||||||||||||||||||
Shares purchased | (10.9 | ) | (600.3 | ) | (600.3 | ) | ||||||||||||||||||||||||||||||||||
Stock compensation plans | (13.5 | ) | 2.2 | 93.5 | 80.0 | |||||||||||||||||||||||||||||||||||
Unearned compensation related to restricted stock unit awards | (58.7 | ) | (58.7 | ) | ||||||||||||||||||||||||||||||||||||
Earned compensation | 29.6 | 29.6 | ||||||||||||||||||||||||||||||||||||||
Increase in redemption value of redeemable interest | (7.6 | ) | (7.6 | ) | 7.6 | |||||||||||||||||||||||||||||||||||
Distributions to noncontrolling and redeemable interest holders | (1.5 | ) | (1.5 | ) | ||||||||||||||||||||||||||||||||||||
Balance as of August 27, 2017 | 754.6 | 75.5 | 1,070.7 | (186.4 | ) | (8,269.7 | ) | 13,259.3 | (2,232.0 | ) | 379.1 | 4,282.9 | 967.5 | |||||||||||||||||||||||||||
Total comprehensive income (loss) | 430.5 | (12.4 | ) | 5.1 | 423.2 | 7.7 | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.49 per share) | (280.9 | ) | (280.9 | ) | ||||||||||||||||||||||||||||||||||||
Shares purchased | - | (0.2 | ) | (0.2 | ) | |||||||||||||||||||||||||||||||||||
Stock compensation plans | (7.1 | ) | 0.4 | 17.3 | 10.2 | |||||||||||||||||||||||||||||||||||
Unearned compensation related to restricted stock unit awards | (2.5 | ) | (2.5 | ) | ||||||||||||||||||||||||||||||||||||
Earned compensation | 19.0 | 19.0 | ||||||||||||||||||||||||||||||||||||||
Decrease in redemption value of redeemable interest | 163.2 | 163.2 | (163.2 | ) | ||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling and redeemable interest holders | (25.2 | ) | (25.2 | ) | (18.6 | ) | ||||||||||||||||||||||||||||||||||
Balance as of Nov. 26, 2017 | 754.6 | 75.5 | 1,243.3 | (186.0 | ) | (8,252.6 | ) | 13,408.9 | (2,244.4 | ) | 359.0 | 4,589.7 | 793.4 | |||||||||||||||||||||||||||
Total comprehensive income | 941.4 | 21.3 | 13.1 | 975.8 | 27.6 | |||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.49 per share) | (281.3 | ) | (281.3 | ) | ||||||||||||||||||||||||||||||||||||
Shares purchased | - | (0.7 | ) | (0.7 | ) | |||||||||||||||||||||||||||||||||||
Stock compensation plans | (28.5 | ) | 1.5 | 62.5 | 34.0 | |||||||||||||||||||||||||||||||||||
Unearned compensation related to restricted stock unit awards | 3.0 | 3.0 | ||||||||||||||||||||||||||||||||||||||
Earned compensation | 13.7 | 13.7 | ||||||||||||||||||||||||||||||||||||||
Decrease in redemption value of redeemable interest | 3.5 | 3.5 | (3.5 | ) | ||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling and redeemable interest holders | (3.0 | ) | (3.0 | ) | ||||||||||||||||||||||||||||||||||||
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. |
| |||||||||||||||||||||||||||||||||||||||
7
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.
| Nine-Month Period Ended | ||||||||
| Feb. 24, 2019 | Feb. 25, 2018 | |||||||
Cash Flows - Operating Activities | ||||||||
Net earnings, including earnings attributable to redeemable and noncontrolling interests | $ | 1,205.0 | $ | 1,804.9 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 464.6 | 434.7 | ||||||
After-tax earnings from joint ventures | (52.0) | (64.1) | ||||||
Distributions of earnings from joint ventures | 46.6 | 60.6 | ||||||
Stock-based compensation | 65.9 | 62.8 | ||||||
Deferred income taxes | 52.5 | (489.1) | ||||||
Pension and other postretirement benefit plan contributions | (21.8) | (20.3) | ||||||
Pension and other postretirement benefit plan costs | 4.7 | 3.5 | ||||||
Divestiture loss | 35.4 | - | ||||||
Restructuring, impairment, and other exit costs | 227.2 | (12.3) | ||||||
Changes in current assets and liabilities, excluding the effects of divestitures | 36.5 | 394.9 | ||||||
Other, net | (37.0) | (40.3) | ||||||
|
|
|
| |||||
Net cash provided by operating activities | 2,027.6 | 2,135.3 | ||||||
|
|
|
| |||||
Cash Flows - Investing Activities | ||||||||
Purchases of land, buildings, and equipment | (367.9) | (397.9) | ||||||
Investments in affiliates, net | (1.5) | (15.2) | ||||||
Proceeds from disposal of land, buildings, and equipment | 10.9 | 0.9 | ||||||
Proceeds from divestiture | 0.2 | - | ||||||
Other, net | (49.4) | (12.7) | ||||||
|
|
|
| |||||
Net cash used by investing activities | (407.7) | (424.9) | ||||||
|
|
|
| |||||
Cash Flows - Financing Activities | ||||||||
Change in notes payable | 429.9 | (37.3) | ||||||
Issuance of long-term debt | - | 500.0 | ||||||
Payment of long-term debt | (1,153.4) | (600.0) | ||||||
Proceeds from common stock issued on exercised options | 140.7 | 91.4 | ||||||
Purchases of common stock for treasury | (0.7) | (601.2) | ||||||
Dividends paid | (883.7) | (846.5) | ||||||
Investment in redeemable interest | 55.7 | - | ||||||
Distributions to noncontrolling and redeemable interest holders | (33.5) | (48.3) | ||||||
Other, net | (13.0) | (27.8) | ||||||
|
|
|
| |||||
Net cash used by financing activities | (1,458.0) | (1,569.7) | ||||||
|
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| |||||
Effect of exchange rate changes on cash and cash equivalents | (13.8) | 46.3 | ||||||
|
|
|
| |||||
Increase in cash and cash equivalents | 148.1 | 187.0 | ||||||
Cash and cash equivalents - beginning of year | 399.0 | 766.1 | ||||||
|
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| |||||
Cash and cash equivalents - end of period | $ | 547.1 | $ | 953.1 | ||||
|
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| |||||
Cash Flow from changes in current assets and liabilities: | ||||||||
Receivables | $ | (50.9) | $ | (25.5) | ||||
Inventories | 80.7 | 56.6 | ||||||
Prepaid expenses and other current assets | 16.5 | 13.3 | ||||||
Accounts payable | 77.5 | 413.0 | ||||||
Other current liabilities | (87.3) | (62.5) | ||||||
|
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| |||||
Changes in current assets and liabilities | $ | 36.5 | $ | 394.9 | ||||
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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 (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 February 25, 201824, 2019, 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 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 172019 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.
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 2019, we sold ourLa Salteña fresh pasta and refrigerated dough business in Argentina, and recorded apre-tax loss of $35.4 million.
During the fourth quarter of fiscal 2018, we entered into a definitive agreement and plan of merger withacquired Blue Buffalo Pet Products, Inc. (“Blue Buffalo”), a publicly held pet food company, pursuant to which 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 will mergemerged into Blue Buffalo, with Blue Buffalo surviving the merger as a wholly owned subsidiary of General Mills. EquityIn accordance with the merger agreement, equity holders of Blue Buffalo will receivereceived $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.cash. We expect to financefinanced the transaction with a combination of $6.0 billion in debt, cash on hand and approximately $1.0 billion in equity. Theequity, and cash on hand. In the quarter and nine-month periods ended February 24, 2019, we recorded acquisition integration costs of $5.8 million and $21.3 million respectively, in selling, general, and administrative (SG&A) expenses. In the quarter and nine-month periods ended February 25, 2018, we recorded acquisition transaction which has been approved by the Boardscosts of Directors of General Mills$19.4 million including $15.9 million in interest, net, and $3.5 million in 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 subject to regulatory approvals and other customary closing conditions,included in the Pet reporting unit and is expectednot deductible for tax purposes. We have conducted a preliminary assessment of certain assets and liabilities related to close by the end of fiscal 2018. Invus, LP and founding Bishop family shareholders, representing more than 50 percentacquisition of Blue Buffalo’s outstanding shares, have delivered written consents approvingBuffalo, and we are continuing our review of these items during the transactionmeasurement period. If new information is obtained about facts and no other approvalcircumstances that existed at the acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to current estimates of Blue Buffalo’s Board of Directors or shareholders is required to complete the transaction. We expect to report the consolidatedthese items.
The results of Blue Buffalo as a segment in future periods.
During the second quarter of fiscal 2017, we sold our Martel, Ohio manufacturing facilityare reported in our Convenience Stores & FoodservicePet operating segment and simultaneously entered intoon aco-packingone-month arrangement with the purchaser. We received $17.5 million in cash, and recorded apre-tax loss of $13.5 million.lag.
(3) Restructuring, InitiativesImpairment, and Other Exit Costs
We are currently pursuing several multi-year restructuring initiatives designed to increase our efficiencyRestructuring and focus our business behind our key growth strategies. Charges related to these activitiesimpairment charges 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 | ||||||||||||||||||||||
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||
| In Millions | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||
Asset impairments | $ | 1.2 | $ | - | $ | 207.0 | $ | - | ||||||||
Targeted actions in global supply chain | 58.8 | - | 58.8 | - | ||||||||||||
Charges associated with restructuring actions previously announced | (0.2 | ) | 7.6 | 2.2 | 27.3 | |||||||||||
Total restructuring and impairment costs | 59.8 | 7.6 | 268.0 | 27.3 | ||||||||||||
In the third quarter of fiscal 2017,2019, we approved restructuring actions designed to better aligndrive efficiencies in targeted areas of our organizational structureglobal supply chain. In
9
our North American Retail segment, we approved actions at certain facilities to consolidate production and optimize our labor and manufacturing platforms. In connection with these actions we will exit our strategic initiatives. This action will affect approximately 600 positions and weCarson, California yogurt manufacturing facility. 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$105 million of restructuring charges in the nine-month period ended February 25, 2018 relatingrelated to these actions.actions, including $13 million of severance expense and $92 million of other costs, primarily asset write-offs. We also expect to incur approximately $2 million of project-related costs. We recorded $73.1$9.3 million of restructuring chargesseverance and $37.3 million of other costs in the third quarter of fiscal 2017.2019. Additionally, we approved targeted systems and process optimization actions in our Europe & Australia segment and expect to incur approximately $20 million of restructuring charges, including $12 million of severance expense and $8 million of other costs. We recorded $11.8 million of severance and $0.4 million of other costs in the third quarter of fiscal 2019.
Certain of these global supply chain actions are subject to union negotiations and works counsel consultations, where required. We expect to spend approximately $30 million of cash related to these actions and spent $0.3 million in the third quarter of fiscal 2019. We expect these actions to be completed by the end of fiscal 2018.2022.
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
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$0.3 million in cash in the nine-month period ended February 25, 201824, 2019, for project-related costs and $40.2compared to $8.0 million in the nine-monthsame period ended February 26, 2017.of fiscal 2018.
In the second quarter of fiscal 2019, we recorded $192.6 million of charges related to the impairment of ourProgresso,Food Should Taste Good, andMountain Highbrand intangible assets in restructuring, impairment, and other exit costs. Please see Note 4 for additional information.
Restructuring and impairment charges and project-related costs are recorded in our Consolidated Statements of Earnings as follows:
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||
| In Millions | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||||||||||||||
Restructuring, impairment, and other exit costs | $ | 59.7 | $ | 7.5 | $ | 267.7 | $ | 14.3 | ||||||||||||||||||||||||
Cost of sales | $ | 0.1 | $ | 16.4 | $ | 13.0 | $ | 42.8 | 0.1 | 0.1 | 0.3 | 13.0 | ||||||||||||||||||||
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 | ||||||||||||||||||||||||||||
Total restructuring and impairment charges | 59.8 | 7.6 | 268.0 | 27.3 | ||||||||||||||||||||||||||||
Project-related costs classified in cost of sales | $ | 3.0 | $ | 11.5 | $ | 8.4 | $ | 36.4 | $ | 0.1 | $ | 3.0 | $ | 1.3 | $ | 8.4 | ||||||||||||||||
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 | ||||||||
| In Millions | Severance | Contract Termination | Other Exit Costs | Total | ||||||||||||
Reserve balance as of May 27, 2018 | $ | 66.0 | $ | 0.1 | $ | 0.7 | $ | 66.8 | ||||||||
Fiscal 2019 charges, including foreign | 11.4 | 1.2 | 2.1 | 14.7 | ||||||||||||
Utilized in fiscal 2019 | (31.2 | ) | (1.3 | ) | (1.9 | ) | (34.4 | ) | ||||||||
Reserve balance as of Feb. 24, 2019 | $ | 46.2 | $ | - | $ | 0.9 | $ | 47.1 | ||||||||
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.
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 | Feb. 24, 2019 | May 27, 2018 | ||||||||||||
Goodwill | $ | 8,867.3 | $ | 8,747.2 | $ | 14,025.8 | $ | 14,065.0 | ||||||||
Other intangible assets: | ||||||||||||||||
Intangible assets not subject to amortization: | ||||||||||||||||
Brands and other indefinite-lived intangibles | 4,222.2 | 4,161.1 | 6,606.5 | 6,818.7 | ||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||
Franchise agreements, customer relationships, | 570.0 | 524.8 | 792.8 | 811.7 | ||||||||||||
Less accumulated amortization | (188.1 | ) | (155.5 | ) | (203.6 | ) | (185.3 | ) | ||||||||
Intangible assets subject to amortization, net | 381.9 | 369.3 | 589.2 | 626.4 | ||||||||||||
Other intangible assets | 4,604.1 | 4,530.4 | 7,195.7 | 7,445.1 | ||||||||||||
Total | $ | 13,471.4 | $ | 13,277.6 | $ | 21,221.5 | $ | 21,510.1 | ||||||||
Based on the carrying value of finite-lived intangible assets as of February 25, 2018,24, 2019, annual amortization expense for each of the next five fiscal years is estimated to be approximately $28$40 million.
During the fourth quarter of fiscal 2018, we acquired Blue Buffalo, which became our Pet operating segment and we recorded $5.3 billion of goodwill, $2.7 billion related to an indefinite-lived brand intangible asset, and $269.0 million related to a finite-lived customer relationship intangible asset.
The changes in the carrying amount of goodwill during fiscal 20182019 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 | ||||||||||||
| In Millions | North America Retail | Pet | Convenience Stores & Foodservice | Europe & Australia | Asia & Latin America | Joint Ventures | Total | |||||||||||||||||||||
Balance as of May 27, 2018 | $ | 6,410.6 | $ | 5,294.9 | $ | 918.8 | $ | 729.9 | $ | 285.0 | $ | 425.8 | $ | 14,065.0 | ||||||||||||||
Other activity, primarily foreign | (1.4 | ) | - | - | (19.1 | ) | (7.1 | ) | (11.6 | ) | (39.2 | ) | ||||||||||||||||
Balance as of Feb. 24, 2019 | $ | 6,409.2 | $ | 5,294.9 | $ | 918.8 | $ | 710.8 | $ | 277.9 | $ | 414.2 | $ | 14,025.8 | ||||||||||||||
The changes in the carrying amount of other intangible assets during fiscal 20182019 were as follows:
| In Millions | Total | |||
Balance as of May | $ | | ||
Impairment charges | (192.6 | ) | ||
Other activity, primarily foreign currency translation | ) | |||
Balance as of Feb. | $ | | ||
| 7,195.7 | ||||
Our11
We performed our annual goodwill and indefinite-lived intangible assets impairment test was performed onas of the first day of the second quarter of fiscal 2018,2019. 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:
| In Millions | Impairment Charge | Fair Value as of Nov. 25, 2018 (a) | ||||||
Progresso | $ | 132.1 | $ | 330.0 | ||||
Food Should Taste Good | 45.1 | - | ||||||
Mountain High | 15.4 | - | ||||||
Total | $ | 192.6 | $ | 330.0 | ||||
(a) Level 3 assets in the fair value hierarchy. | ||||||||
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 theYokiand Progresso 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 theYokiandProgressobrand intangible assets and the Latin America reporting unit isand theYoki brand intangible asset were as follows:
| In Millions | Carrying Value of Intangible Asset | Excess Fair Value as of Fiscal 2018 Test Date | Carrying Value of Intangible Asset | Excess Fair Value as of Fiscal 2019 Test Date | ||||||||||||
Latin America | $ | 209.0 | 7 | % | ||||||||||||
Yoki | $ | 138.2 | 1 | % | $ | 49.1 | 10 | % | ||||||||
Progresso | 462.1 | 6 | % | |||||||||||||
Latin America | $ | 272.0 | 21 | % | ||||||||||||
In addition, whileWhile having significant coverage as of our fiscal 20182019 assessment date, the Food Should Taste GoodPillsburyandGreen Giantbrand 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:
| In Millions | Feb. 25, 2018 | May 28, 2017 | Feb. 24, 2019 | May 27, 2018 | ||||||||||||
Raw materials and packaging | $ | 392.3 | $ | 395.4 | $ | 401.0 | $ | 400.0 | ||||||||
Finished goods | 1,169.8 | 1,224.3 | 1,263.4 | 1,364.2 | ||||||||||||
Grain | 101.6 | 73.0 | 97.8 | 91.2 | ||||||||||||
Excess of FIFO over LIFO cost | (211.2 | ) | (209.1 | ) | (217.7 | ) | (213.2 | ) | ||||||||
Total | $ | 1,452.5 | $ | 1,483.6 | $ | 1,544.5 | $ | 1,642.2 | ||||||||
(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
12
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 and nine-month periods ended February 25, 201824, 2019 and February 26, 201725, 2018 included:
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||
| In Millions | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||||||||||||||
Net gain (loss) onmark-to-market valuation of certain commodity positions | $ | 0.3 | $ | - | $ | (8.1 | ) | $ | (15.9 | ) | $ | 10.2 | $ | 0.3 | $ | (26.8 | ) | $ | (8.1 | ) | ||||||||||||
Net loss on commodity positions reclassified from unallocated corporate items to segment operating profit | 4.6 | 4.0 | 10.7 | 27.7 | ||||||||||||||||||||||||||||
Net loss (gain) on commodity positions reclassified from unallocated corporate items to segment operating profit | 0.8 | 4.6 | (0.7 | ) | 10.7 | |||||||||||||||||||||||||||
Netmark-to-market revaluation of certain grain inventories | (7.7 | ) | 4.2 | 0.9 | 8.9 | (4.5 | ) | (7.7 | ) | (8.9 | ) | 0.9 | ||||||||||||||||||||
Netmark-to-market valuation of certain commodity positions recognized in unallocated corporate items | $ | (2.8 | ) | $ | 8.2 | $ | 3.5 | $ | 20.7 | $ | 6.5 | $ | (2.8 | ) | $ | (36.4 | ) | $ | 3.5 | |||||||||||||
As of February 25, 2018,24, 2019, the net notional value of commodity derivatives was $377.9$229.0 million, of which $106.1$101.2 million related to energy inputs and $271.8$127.8 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 million5-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 million10-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, 2018,24, 2019, 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, $927.024, 2019, $1,017.5 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 | Feb. 24, 2019 | May 27, 2018 | ||||||||||||
U.S. commercial paper | $ | 885.2 | $ | 954.7 | $ | 1,804.9 | $ | 1,213.5 | ||||||||
Financial institutions | 325.6 | 279.4 | 166.4 | 336.3 | ||||||||||||
Total | $ | 1,210.8 | $ | 1,234.1 | $ | 1,971.3 | $ | 1,549.8 | ||||||||
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 afee-paid commitment letter with certain lenders, pursuant to which such lenders have committed to provide a364-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 thefee-paid committed and uncommitted credit lines we had available as of February 25, 2018:24, 2019:
| In Billions | Facility Amount | Borrowed Amount | Facility Amount | Borrowed Amount | ||||||||||||
|
|
| ||||||||||||||
Credit facility expiring: | ||||||||||||||||
February 2019 | $ | 8.5 | $ | - | ||||||||||||
May 2022 | 2.7 | - | $ | 2.7 | $ | - | ||||||||||
June 2019 | 0.2 | 0.2 | 0.2 | - | ||||||||||||
|
|
|
| |||||||||||||
Total committed credit facilities | 11.4 | 0.2 | 2.9 | - | ||||||||||||
Uncommitted credit facilities | 0.5 | 0.2 | 0.7 | 0.2 | ||||||||||||
| ||||||||||||||||
Total committed and uncommitted credit facilities | $ | 11.9 | $ | 0.4 | $ | 3.6 | $ | 0.2 | ||||||||
| ||||||||||||||||
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, 2018.24, 2019.
13
Long-Term Debt
The fair values and carrying amounts of long-term debt, including the current portion, were $8,512.6$12,960.8 million and $8,414.1$13,049.8 million, respectively, as of February 25, 2018.24, 2019. 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 March 2019, subsequent to the end of our fiscal third quarter, we issued €300.0 million principal amount of 0.0 percent fixed-rate notes due January 15, 2020. We may redeem the notes if certain tax laws change and we would be obligated to pay additional amounts on the notes. These notes are senior unsecured obligations that include a change of control repurchase provision. We intend to use the net proceeds, together with cash on hand, to repay our floating rate notes due March 2019.
In February 2019, we repaid $1,150.0 million of 5.65 percent fixed-rate notes with proceeds from commercial paper.
In April 2018, we issued $4,800.0 million principal amount of fixed-rate notes. 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 finance a portion of the Blue Buffalo acquisition.
The principal amounts of these fixed-rate notes were as follows:
In Millions | Principal | |||
4.2% notes due April 17, 2028 | $ | 1,400.0 | ||
3.7% notes due October 17, 2023 | 850.0 | |||
4.0% notes due April 17, 2025 | 800.0 | |||
4.7% notes due April 17, 2048 | 650.0 | |||
3.2% notes due April 16, 2021 | 600.0 | |||
4.55% notes due April 17, 2038 | 500.0 | |||
Total | $ | 4,800.0 |
In April 2018, we issued $1,250.0 million principal amount of floating-rate notes. 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 finance a portion of the Blue Buffalo acquisition.
The principal amounts of these floating-rate notes were as follows:
In Millions | Principal | |||
Floating-rate notes due April 16, 2021 | $ | 850.0 | ||
Floating-rate notes due October 17, 2023 | 400.0 | |||
Total | $ | 1,250.0 |
In the third quarter of fiscal 2018, we paid $113.8 million to repurchase $100.0 million of our previously issued 6.39%6.39 percent 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, 2018,24, 2019, 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 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 additionalpaid-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 February 25, 2018,24, 2019, the redemption value of the euro-denominated redeemable interest was $817.5$548.9 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 $150.1 million for the nine-month period ended February 24, 2019, and $172.7 million for the nine-month period ended February 25, 2018 and $134.62018.
During the second quarter of fiscal 2019, Sodiaal made an additional investment of $55.7 million for the nine-month period ended February 26, 2017.in Yoplait SAS.
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 toYoplaitand related trademarks. Liberté Marques Sàrl earns a royalty stream through licensing agreements with certain Yoplait group companies for the rights toLibertéand 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 subsidiaryClass 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 recentmark-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. On June 1, 2015, the floating preferred return rate on GMC’s 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, 2018,24, 2019, 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended | Quarter Ended | Feb. 24, 2019 | Feb. 25, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Feb. 25, 2018 | Feb. 26, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General Mills | Noncontrolling Interests | Redeemable Interest | General Mills | Noncontrolling Interests | Redeemable Interest | General Mills | Noncontrolling Interests | Redeemable Interest | General Mills | Noncontrolling Interests | Redeemable Interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In Millions | Pretax | Tax | Net | Net | Net | Pretax | Tax | Net | Net | Net | 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 | $ | 446.8 | $ | 2.5 | $ | 8.6 | $ | 941.4 | $ | 2.8 | $ | 8.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | $ | (6.9 | ) | $ | - | (6.9 | ) | 10.3 | 20.1 | $ | 109.0 | $ | - | 109.0 | (0.5 | ) | 5.2 | $ | 46.1 | $ | - | 46.1 | 0.1 | 2.5 | $ | (6.9 | ) | $ | - | (6.9 | ) | 10.3 | 20.1 | |||||||||||||||||||||||||||||||||||||||||||||||
Other fair value changes: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities | 0.8 | (0.2 | ) | 0.6 | - | - | 0.7 | (0.2 | ) | 0.5 | - | - | - | - | - | - | - | 0.8 | (0.2 | ) | 0.6 | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hedge derivatives | (7.2 | ) | 1.2 | (6.0 | ) | - | (0.7 | ) | (6.2 | ) | 1.3 | (4.9 | ) | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hedge derivatives | (5.9 | ) | (1.0 | ) | (6.9 | ) | - | (0.8 | ) | (7.2 | ) | 1.2 | (6.0 | ) | - | (0.7 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification to earnings: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hedge derivatives | 3.9 | (1.0 | ) | 2.9 | - | (0.1 | ) | (9.8 | ) | 1.8 | (8.0 | ) | - | (0.7 | ) | (2.0 | ) | 0.7 | (1.3 | ) | - | 0.1 | 3.9 | (1.0 | ) | 2.9 | - | (0.1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of losses and prior service costs (b) | 45.1 | (14.4 | ) | 30.7 | - | - | 48.0 | (18.1 | ) | 29.9 | - | - | 27.3 | (6.3 | ) | 21.0 | - | - | 45.1 | (14.4 | ) | 30.7 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | $ | 35.7 | $ | (14.4 | ) | 21.3 | 10.3 | 19.3 | $ | 141.7 | $ (15.2 | ) | 126.5 | (0.5 | ) | 4.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | $ | 65.5 | $ | (6.6 | ) | 58.9 | 0.1 | 1.8 | $ | 35.7 | $ (14.4) | 21.3 | 10.3 | 19.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | $ | 962.7 | $ | 13.1 | $ | 27.6 | $ | 484.3 | $ | 2.4 | $ | 14.0 | $ | 505.7 | $ | 2.6 | $ | 10.4 | $ | 962.7 | $ | 13.1 | $ | 27.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a) |
Loss |
Net earnings, including earnings attributable to redeemable and noncontrolling interests Other comprehensive income (loss): Foreign currency translation Other fair value changes: Securities Hedge derivatives Reclassification to earnings: Hedge derivatives (a) Amortization of losses and prior service costs (b) Other comprehensive income (loss) Total comprehensive income (loss) 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 $ 1,776.6 $ 8.8 $ 19.5 $ 1,248.6 $ 10.7 $ 26.2 $ (55.5 ) $ - (55.5 ) 32.4 66.1 $ 146.0 $ - 146.0 (15.7 ) (41.9 ) 2.1 (0.7 ) 1.4 - - 1.2 (0.4 ) 0.8 - - (19.4 ) 3.9 (15.5 ) - (0.1 ) 52.5 (12.8 ) 39.7 - 2.7 7.2 (2.6 ) 4.6 - (1.2 ) (18.4 ) 1.4 (17.0 ) - (2.3 ) 132.7 (46.3 ) 86.4 - - 148.8 (56.5 ) 92.3 - - $ 67.1 $ (45.7 ) 21.4 32.4 64.8 $ 330.1 $ (68.3 ) 261.8 (15.7 ) (41.5 ) $ 1,798.0 $ 41.2 $ 84.3 $ 1,510.4 $ (5.0 ) $ (15.3 )
| (b) | Loss reclassified from AOCI into earnings is reported in benefit plannon-service income. Please refer to Note 17. |
16
| Nine-Month Period Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||||||||||
| Feb. 24, 2019 | Feb. 25, 2018 | |||||||||||||||||||||||||||||||||||||||
| 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 | $ | 1,182.5 | $ | 10.7 | $ | 11.8 | $ | 1,776.6 | $ | 8.8 | $ | 19.5 | ||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | $ 5.8 | $ | - | 5.8 | (9.5 | ) | (16.4 | ) | $ | (55.5 | ) | $ | - | (55.5 | ) | 32.4 | 66.1 | |||||||||||||||||||||||
Other fair value changes: | ||||||||||||||||||||||||||||||||||||||||
Securities | - | - | - | - | - | 2.1 | (0.7 | ) | 1.4 | - | - | |||||||||||||||||||||||||||||
Hedge derivatives | 3.3 | (1.3 | ) | 2.0 | - | (0.5 | ) | (19.4 | ) | 3.9 | (15.5 | ) | - | (0.1 | ) | |||||||||||||||||||||||||
Reclassification to earnings: | ||||||||||||||||||||||||||||||||||||||||
Securities (a) | (2.6 | ) | 0.6 | (2.0 | ) | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Hedge derivatives (b) | (1.0 | ) | 0.4 | (0.6 | ) | - | 0.1 | 7.2 | (2.6 | ) | 4.6 | - | (1.2 | ) | ||||||||||||||||||||||||||
Amortization of losses and prior service costs (c) | 81.0 | (17.5 | ) | 63.5 | - | - | 132.7 | (46.3 | ) | 86.4 | - | - | ||||||||||||||||||||||||||||
Other comprehensive income (loss) | $ | 86.5 | $ (17.8) | 68.7 | (9.5 | ) | (16.8 | ) | $ | 67.1 | $ | (45.7 | ) | 21.4 | 32.4 | 64.8 | ||||||||||||||||||||||||
Total comprehensive income (loss) | $ | 1,251.2 | $ | 1.2 | $ | (5.0 | ) | $ | 1,798.0 | $ | 41.2 | $ | 84.3 | |||||||||||||||||||||||||||
| (a) | Gain reclassified from AOCI into earnings is reported in interest, net for securities. |
| (b) | Loss (gain) reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A |
| (c) | Loss reclassified from AOCI into earnings is reported in benefit plannon-service income. Please refer to Note 17. |
Accumulated other comprehensive loss balances, net of tax effects, were as follows:
| In Millions | Feb. 25, 2018 | May 28, 2017 | Feb. 24, 2019 | May 27, 2018 | ||||||||||||
Foreign currency translation adjustments | $ | (680.2 | ) | $ | (624.7 | ) | $ | (695.8 | ) | $ | (701.6 | ) | ||||
Unrealized gain (loss) from: | ||||||||||||||||
Securities | 7.3 | 4.6 | – | 2.0 | ||||||||||||
Hedge derivatives | (11.0 | ) | 1.5 | (30.7 | ) | (32.1 | ) | |||||||||
Pension, other postretirement, and postemployment benefits: | ||||||||||||||||
Net actuarial loss | (1,886.8 | ) | (1,645.4 | ) | (1,658.5 | ) | (1,723.6 | ) | ||||||||
Prior service costs | 18.2 | 19.5 | ||||||||||||||
| ||||||||||||||||
Prior service credits | 24.7 | 26.3 | ||||||||||||||
Accumulated other comprehensive loss | $ | (2,552.5 | ) | $ | (2,244.5 | ) | $ | (2,360.3 | ) | $ | (2,429.0 | ) | ||||
| ||||||||||||||||
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 andnon-employee directors. These programs and related accounting are described in Note 11 to the Consolidated Financial Statements included in our Annual Report on Form10-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.27, 2018.
Compensation expense related to stock-based payments recognized in the Consolidated Statements of Earnings was as follows:
| Quarter Ended | Nine-Month Period Ended | Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||
| In Millions | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||||||||||||||
Compensation expense related to stock-based payments | $ | 14.5 | $ | 20.1 | $ | 63.4 | $ | 77.7 | $ | 21.4 | $ | 14.5 | $ | 66.0 | $ | 63.4 | ||||||||||||||||
| ||||||||||||||||||||||||||||||||
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 20172019 and fiscal 2018.
We recognized windfall tax benefits from stock-based payments in income tax expense in our Consolidated Statements of Earnings of $5.3 million for the third quarter of fiscal 2019 and $12.0 million for the nine-month period ended February 24, 2019 compared to $6.6 million in the third quarter of fiscal 2018 and $26.8 million in the nine-month period ended February 25, 2018.
As of February 25, 2018,24, 2019, unrecognized compensation expense related tonon-vested stock options, restricted stock units, and performance share units was $110.9$117.2 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 | Nine-Month Period Ended | |||||||||||||||
| In Millions | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||
Net cash proceeds | $ | 91.4 | $ | 90.5 | $ | 140.7 | $ | 91.4 | ||||||||
Intrinsic value of options exercised | $ | 79.9 | $ | 153.1 | $ | 66.5 | $ | 79.9 | ||||||||
| ||||||||||||||||
We estimate the fair value of each stock option on the grant date using a Black-Scholes option-pricing model. Black-Scholes option-pricing models require us to make predictive assumptions regarding future stock price volatility, employee exercise behavior, and dividend yield. We estimate our future stock price volatility using the historical volatility over the expected term of the option, excluding time periods of volatility we believe a marketplace participant would exclude in estimating our stock price volatility. We also have considered, but did not use, implied volatility in our estimate, because trading activity in options on our stock, especially those with tenors of greater than 6 months, is insufficient to provide a reliable measure of expected volatility. Our method of selecting the other valuation assumptions is explained in Note 11 to the Consolidated Financial Statements included in our Annual Report on Form10-K for the fiscal year ended May 28, 2017.27, 2018.
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 | Nine-Month Period Ended | |||||||||||||||
Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | |||||||||||||
Estimated fair values of stock options granted | $6.18 | $8.80 | $5.35 | $6.18 | ||||||||||||
Assumptions: | ||||||||||||||||
Risk-free interest rate | 2.2 | % | 1.7 | % | 2.9 | % | 2.2 | % | ||||||||
Expected term | 8.2 years | 8.5 years | 8.5 years | 8.2 years | ||||||||||||
Expected volatility | 15.8 | % | 17.8 | % | 16.3 | % | 15.8 | % | ||||||||
Dividend yield | 3.6 | % | 2.9 | % | 4.3 | % | 3.6 | % | ||||||||
18
Information on stock option activity follows:
Options Outstanding (Thousands) | Weighted- Price Per | Weighted- Average Term (Years) | Aggregate Intrinsic Value (Millions) | Options Outstanding (Thousands) | Weighted- Price Per | Weighted- Average Term (Years) | Aggregate Intrinsic Value (Millions) | |||||||||||||||||||||||||
Balance as of May 28, 2017 | 29,834.4 | $ | 40.47 | |||||||||||||||||||||||||||||
Balance as of May 27, 2018 | 28,963.8 | $ | 42.90 | |||||||||||||||||||||||||||||
Granted | 2,816.7 | 55.52 | 3,149.8 | 46.09 | ||||||||||||||||||||||||||||
Exercised | (3,207.2 | ) | 31.43 | (4,751.9 | ) | 30.53 | ||||||||||||||||||||||||||
Forfeited or expired | (146.8 | ) | 58.69 | (447.0 | ) | 53.60 | ||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Outstanding as of Feb. 24, 2019 | 26,914.7 | $ | 45.28 | 4.60 | $ | 139.6 | ||||||||||||||||||||||||||
Exercisable as of Feb. 24, 2019 | 17,366.1 | $ | 39.85 | 2.66 | $ | 138.0 | ||||||||||||||||||||||||||
Information on restricted stock and performance share unit activity follows:
| Equity Classified | Liability Classified | Equity Classified | Liability Classified | |||||||||||||||||||||||||||||
| Share- Settled Units (Thousands) | Weighted- Grant-Date Fair Value | Share- Settled Units (Thousands) | Weighted- Grant-Date Fair Value | Share- Settled Units (Thousands) | Weighted- Grant-Date Fair Value | Share- Settled Units (Thousands) | Weighted- Grant-Date Fair Value | |||||||||||||||||||||||||
Non-vested as of May 28, 2017 | 4,491.2 | $ | 56.08 | 123.3 | $ | 56.93 | ||||||||||||||||||||||||||
Non-vested as of May 27, 2018 | 3,731.8 | $ | 57.50 | 121.3 | $ | 58.26 | ||||||||||||||||||||||||||
Granted | 1,473.6 | 55.37 | 42.9 | 55.49 | 1,816.2 | 46.09 | 35.2 | 46.11 | ||||||||||||||||||||||||
Vested | (1,738.9 | ) | 50.53 | (36.2 | ) | 49.42 | (797.3 | ) | 50.85 | (34.2 | ) | 55.29 | ||||||||||||||||||||
Forfeited | (415.9 | ) | 62.63 | (9.4 | ) | 58.91 | (355.9 | ) | 58.14 | (11.8 | ) | 57.64 | ||||||||||||||||||||
Non-vested as of Feb. 25, 2018 | 3,810.0 | $ | 57.62 | 120.6 | $ | 58.31 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Non-vested as of Feb. 24, 2019 | 4,394.8 | $ | 53.94 | 110.5 | $ | 55.38 | ||||||||||||||||||||||||||
The total grant date fair value of restricted stock unit awards that vested during the period follows:
| Nine-Month Period Ended | Nine-Month Period Ended | |||||||||||||||
| In Millions | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||
Total grant date fair value | $ | 89.7 | $ | 71.2 | $ | 42.4 | $ | 89.7 | ||||||||
| ||||||||||||||||
19
(11) Earnings Per Share
Basic and diluted earnings per share (EPS) were calculated using the following:
| Quarter Ended | Nine-Month Period Ended | Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||
| In Millions, Except per Share Data | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||||||||||||||
Net earnings attributable to General Mills | $ | 941.4 | $ | 357.8 | $ | 1,776.6 | $ | 1,248.6 | $ | 446.8 | $ | 941.4 | $ | 1,182.5 | $ | 1,776.6 | ||||||||||||||||
| ||||||||||||||||||||||||||||||||
Average number of common shares - basic EPS | 572.5 | 580.7 | 573.4 | 589.8 | ||||||||||||||||||||||||||||
Average number of common shares – basic EPS | 600.4 | 572.5 | 599.3 | 573.4 | ||||||||||||||||||||||||||||
Incremental share effect from: (a) | ||||||||||||||||||||||||||||||||
Stock options | 7.9 | 7.8 | 7.7 | 8.5 | 2.2 | 7.9 | 3.0 | 7.7 | ||||||||||||||||||||||||
Restricted stock, restricted stock units, and other | 2.3 | 2.9 | 2.1 | 2.8 | 1.9 | 2.3 | 1.7 | 2.1 | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Average number of common shares – diluted EPS | 604.5 | 582.7 | 604.0 | 583.2 | ||||||||||||||||||||||||||||
Earnings per share – basic | $ | 0.74 | $ | 1.64 | $ | 1.97 | $ | 3.10 | ||||||||||||||||||||||||
Earnings per share – diluted | $ | 0.74 | $ | 1.62 | $ | 1.96 | $ | 3.05 | ||||||||||||||||||||||||
| (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 | Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||
| In Millions | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||||||||||||||
Anti-dilutive stock options, restricted stock units, and performance share units | 5.2 | 2.4 | 6.8 | 2.2 | 14.4 | 5.2 | 14.1 | 6.8 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
(12) Share Repurchases
Share repurchases were as follows:
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||
| In Millions | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||||||||||||||
Shares of common stock | - | 4.9 | 10.9 | 25.4 | - | - | - | 10.9 | ||||||||||||||||||||||||
Aggregate purchase price | $0.7 | $301.0 | $601.2 | $1,650.9 | $ 0.4 | $ 0.7 | $ 0.7 | $ 601.2 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
(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 | ||||
| ||||||||
Net cash interest payments Net income tax payments Nine-Month
Period Ended In Millions Feb. 24,
2019 Feb. 25,
2018 $ 367.8 $ 237.9 $ 334.5 $ 424.3
(14) Retirement and Postemployment Benefits
In fiscal 2017,2018, we changedapproved an amendment to reorganize 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 internationalU.S. qualified defined benefit pension other postretirement benefit,plans and postemployment benefit plans. We adoptedthe supplemental pension plans that resulted in the spinoff of a full yield curve approach to estimate service costportion of the General Mills Pension Plan (the Plan) and interest cost by applying the specific spot rates along2005 Supplemental Retirement Plan and the yield curve used to determineSupplemental Retirement Plan (Grandfathered) (together, the benefit obligationSupplemental Plans) into new plans effective May 31, 2018. The benefits offered to the relevant projected cash flows. This method provides a more precise measurement of service and interest costs by correlating the timingplans’ participants were unchanged. The result of the plans’ liability cash flowsreorganization was the creation of the General Mills Pension Plan I (Plan I) and the 2005 Supplemental Retirement Plan I and the Supplemental Retirement Plan I (Grandfathered) (together, the Supplemental Plans I). The reorganization was made to facilitate a targeted investment strategy over
20
time and to provide additional flexibility in evaluating opportunities to reduce risk and volatility. Actuarial gains and losses associated with the corresponding rate onPlan and the yield curve.Supplemental Plans are amortized over the average remaining service life of the active participants. Actuarial gains and losses associated with Plan I and the Supplemental Plans I are amortized over the average remaining life of the participants.
Components of net periodic benefit expense are as follows:
| Defined Benefit Pension Plans | Other Postretirement Benefit Plans | Postemployment Benefit Plans | Defined Benefit Pension Plans | Other Postretirement Benefit Plans | Postemployment Benefit Plans | |||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended | Quarter Ended | Quarter Ended | 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 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | 23.7 | $ | 24.0 | $ | 2.4 | $ | 2.8 | $ | 1.9 | $ | 2.1 | ||||||||||||||||||||||||
Interest cost | 163.4 | 162.4 | 22.8 | 24.2 | 1.7 | 2.1 | 62.0 | 55.4 | 8.3 | 7.7 | 0.7 | 0.6 | ||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (360.1 | ) | (365.1 | ) | (39.1 | ) | (36.3 | ) | - | - | (111.4 | ) | (119.3 | ) | (10.2 | ) | (13.0 | ) | - | - | ||||||||||||||||||||||||||||
Amortization of losses | 132.8 | 142.2 | 0.6 | 1.9 | 0.6 | 1.3 | 27.6 | 44.6 | 0.2 | 0.2 | 0.1 | 0.2 | ||||||||||||||||||||||||||||||||||||
Amortization of prior service costs (credits) | 1.4 | 1.8 | (4.0 | ) | (4.1 | ) | 0.5 | 0.5 | 0.3 | 0.4 | (1.3 | ) | (1.3 | ) | 0.1 | 0.2 | ||||||||||||||||||||||||||||||||
Other adjustments | - | 2.1 | - | 1.3 | 7.2 | 10.2 | - | - | - | - | 1.9 | 0.4 | ||||||||||||||||||||||||||||||||||||
Settlement or curtailment losses | - | 4.4 | - | 0.7 | - | - | 0.3 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Net expense (income) | $ | 14.6 | $ | 37.7 | $ | (11.0 | ) | $ | (2.9 | ) | $ | 16.4 | $ | 20.7 | $ | 2.5 | $ | 5.1 | $ | (0.6 | ) | $ | (3.6 | ) | $ | 4.7 | $ | 3.5 | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
| 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. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||||||||||||||||||||||||||||||||
Service cost | $ | 71.1 | $ | 71.9 | $ | 7.5 | $ | 8.4 | $ | 5.7 | $ | 6.4 | ||||||||||||||||||||||||||||||||||||
Interest cost | 186.0 | 166.2 | 24.8 | 23.1 | 2.2 | 1.7 | ||||||||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (334.4 | ) | (357.7 | ) | (30.4 | ) | (39.1 | ) | - | - | ||||||||||||||||||||||||||||||||||||||
Amortization of losses | 82.6 | 132.8 | 0.5 | 0.6 | 0.2 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||
Amortization of prior service costs (credits) | 1.1 | 1.4 | (4.1 | ) | (4.0 | ) | 0.4 | 0.5 | ||||||||||||||||||||||||||||||||||||||||
Other adjustments | - | - | - | - | 7.5 | 7.2 | ||||||||||||||||||||||||||||||||||||||||||
Settlement or curtailment losses | 0.3 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Net expense (income) | $ | 6.7 | $ | 14.6 | $ | (1.7 | ) | $ | (11.0 | ) | $ | 16.0 | $ | 16.4 | ||||||||||||||||||||||||||||||||||
(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 aone-time deemed repatriation tax on untaxed foreign earnings. The TCJA also resultsincludes provisions affecting our fiscal 2019 tax rate, including, but not limited to: a reduction in the U.S. corporate tax rate on domestic operations to 21 percent; a new provision that taxes U.S. federal statutory blended rateallocated expenses and certain income from foreign operations (Global Intangible Low Tax Income or “GILTI”); a new limitation on deductible interest expense; the repeal of 29.4 percent for fiscal 2018. the domestic manufacturing deduction; and a limitation on the deductibility of certain executive compensation.
Generally, the impacts of the new legislation would be required to be recorded in the period of enactment which for us iswas the third quarter of fiscal 2018. However, AccountingStandards Update2018-05:Income Taxes (Topic 740) (ASU2018-05) 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.
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 of $523.5 million related to the impacts of the TCJA. This provisional net benefit was determined using reasonable estimates for those tax effects based on analysis and information available to date. The provisional net benefit is subject to revisions asIn the third quarter of fiscal 2019, we completecompleted our analysisaccounting for the tax effects of the TCJA collect and prepare necessary data,recorded a benefit of $7.2 million which
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included adjustments to the transition tax and interpretthe measurement of our net U.S. deferred tax liability. We will continue to monitor for any additionalfuture 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 ASU2018-05. 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 arere-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 subsidiariesbodies 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 resultsadditional impacts 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.enactment.
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.
(16) Business Segment and Geographic Information
We operate in the consumerpackaged foods industry. We have fourDuring the fourth quarter of fiscal 2018, we acquired Blue Buffalo, which became our Pet operating segment. Following the acquisition, our operating segments by type of customer and geographic regionare as follows: North America Retail; Convenience Stores & Foodservice; Europe & Australia; and Asia & Latin America.America; and Pet.
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,ande-commerce grocery grocery providers. Our product categories in this business segmentareready-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, saltysnacks,ready-to-eat cereal, cereal, and grain snacks.
Our major product categories in our Convenience Stores & Foodservice operating segmentareready-to-eat cereals, 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 customerfranchisee 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 and franchise fees are reported in the region or country where the end customer or franchisee is located.
Our Pet operating segment includes pet food products sold primarily in the United States in specialty channels, including national pet superstore chains, regional pet store chains, neighborhood pet stores, and farm and feedstores; e-commerce retailers; military outlets; hardware stores; veterinary clinics and hospitals; and grocery and mass merchandisers. 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. We are reporting the Pet operating segment results ona one-month lag and accordingly, our fiscal 2018 results did not include Pet segment operating results.
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, 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 lossesfrommark-to-market valuation 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 byfor all operating segment.segments.
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Our operating segment results were as follows:
| Quarter Ended | Nine-Month Period Ended | Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||
| In Millions | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Net sales: | ||||||||||||||||||||||||||||||||
North America Retail | $ | 2,517.4 | $ | 2,499.0 | $ | 7,727.4 | $ | 7,804.8 | $ | 2,518.6 | $ | 2,517.4 | $ | 7,583.5 | $ | 7,727.4 | ||||||||||||||||
Convenience Stores & Foodservice | 460.3 | 448.5 | 1,419.6 | 1,382.3 | 472.5 | 460.3 | 1,450.1 | 1,419.6 | ||||||||||||||||||||||||
Europe & Australia | 469.8 | 424.5 | 1,428.4 | 1,338.0 | 432.7 | 469.8 | 1,387.2 | 1,428.4 | ||||||||||||||||||||||||
Asia & Latin America | 434.8 | 421.2 | 1,274.8 | 1,288.1 | 427.7 | 434.8 | 1,257.4 | 1,274.8 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Pet | 346.8 | - | 1,025.3 | - | ||||||||||||||||||||||||||||
Total | $ | 3,882.3 | $ | 3,793.2 | $ | 11,850.2 | $ | 11,813.2 | $ | 4,198.3 | $ | 3,882.3 | $ | 12,703.5 | $ | 11,850.2 | ||||||||||||||||
| ||||||||||||||||||||||||||||||||
Operating profit: | ||||||||||||||||||||||||||||||||
North America Retail | $ | 518.3 | $ | 516.7 | $ | 1,674.4 | $ | 1,795.9 | $ | 581.6 | $ | 518.3 | $ | 1,749.5 | $ | 1,674.4 | ||||||||||||||||
Convenience Stores & Foodservice | 84.3 | 93.6 | 275.6 | 295.4 | 96.7 | 84.3 | 303.4 | 275.6 | ||||||||||||||||||||||||
Europe & Australia | 27.3 | 42.0 | 84.8 | 127.2 | 24.4 | 27.3 | 81.4 | 84.8 | ||||||||||||||||||||||||
Asia & Latin America | (2.1 | ) | 10.0 | 30.1 | 61.3 | 19.5 | (2.1 | ) | 49.6 | 30.1 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Pet | 73.0 | - | 158.3 | - | ||||||||||||||||||||||||||||
Total segment operating profit | 627.8 | 662.3 | 2,064.9 | 2,279.8 | 795.2 | 627.8 | 2,342.2 | 2,064.9 | ||||||||||||||||||||||||
Unallocated corporate items | 27.6 | 42.2 | 102.3 | 143.6 | 48.8 | 50.8 | 239.3 | 166.8 | ||||||||||||||||||||||||
Divestiture loss | - | - | - | 13.5 | 35.4 | - | 35.4 | - | ||||||||||||||||||||||||
Restructuring, impairment, and other exit costs | 7.5 | 77.6 | 14.3 | 165.5 | 59.7 | 7.5 | 267.7 | 14.3 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Operating profit | $ | 592.7 | $ | 542.5 | $ | 1,948.3 | $ | 1,957.2 | $ | 651.3 | $ | 569.5 | $ | 1,799.8 | $ | 1,883.8 | ||||||||||||||||
| ||||||||||||||||||||||||||||||||
Net sales for our North America Retail operating units were as follows:
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||
| In Millions | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||
U.S. Meals & Baking | $ | 1,027.8 | $ | 1,010.6 | $ | 3,039.9 | $ | 3,063.3 | ||||||||
U.S. Cereal | 566.9 | 544.7 | 1,695.2 | 1,693.4 | ||||||||||||
U.S. Snacks | 497.6 | 504.2 | 1,535.4 | 1,587.7 | ||||||||||||
U.S. Yogurt and Other | 221.3 | 227.0 | 668.5 | 688.0 | ||||||||||||
Canada | 205.0 | 230.9 | 644.5 | 695.0 | ||||||||||||
Total | $ | 2,518.6 | $ | 2,517.4 | $ | 7,583.5 | $ | 7,727.4 | ||||||||
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Net sales by class of similar products were as follows:
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||
| In Millions | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | ||||||||||||
Snacks | $ | 815.6 | $ | 819.1 | $ | 2,502.8 | $ | 2,514.5 | ||||||||
Convenient meals | 720.9 | 729.5 | 2,033.4 | 2,058.7 | ||||||||||||
Cereal | 668.4 | 649.4 | 2,000.6 | 2,009.8 | ||||||||||||
Yogurt | 533.0 | 574.3 | 1,630.4 | 1,722.0 | ||||||||||||
Dough | 442.3 | 441.7 | 1,309.0 | 1,304.7 | ||||||||||||
Baking mixes and ingredients | 401.7 | 398.1 | 1,255.6 | 1,279.1 | ||||||||||||
Pet | 346.8 | - | 1,025.3 | - | ||||||||||||
Super-premium ice cream | 157.1 | 153.3 | 607.4 | 584.4 | ||||||||||||
Vegetables | 66.2 | 66.9 | 204.1 | 226.2 | ||||||||||||
Other | 46.3 | 50.0 | 134.9 | 150.8 | ||||||||||||
Total | $ | 4,198.3 | $ | 3,882.3 | $ | 12,703.5 | $ | 11,850.2 | ||||||||
(17) New Accounting Pronouncements
In the first quarter of fiscal 2018,2019, 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 benefitsrequirements related to the exercise or vestingpresentation of stock-based awardsnet periodic defined benefit pension expense, net periodic postretirement benefit expense, and net periodic postemployment benefit expense (collectively “net periodic 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 insteadEarnings. In addition, the new standard requires that only the service cost component of additionalpaid-in capital within our Consolidated Balance Sheets. We recognized a windfall taxnet periodic benefit in income tax expense in our Consolidated Statementsis eligible for capitalization. The new standard requires retrospective adoption of Earningsthe presentation of $6.6 million innet periodic benefit expense and prospective application of the third quartercapitalization of fiscal 2018 and $26.8 million in the nine-month periodservice cost component. For the quarters ended February 24, 2019, and February 25, 2018. We retrospectively adopted2018, the guidance relatedimpact of the adoption of this standard on our results of operations was a decrease to reclassificationour operating profit of realized windfall tax benefits in our Consolidated Statements of Cash Flows. This resulted in reclassifications of $26.8$21.4 million and $65.1$23.2 million and a corresponding increase to benefit plannon-service income of cash provided by financing activities to operating activities for$21.4 million and $23.2 million, respectively. For the nine-month periods ended February 25, 201824, 2019, 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, the impact of the adoption of this standard on our results of operations was a decrease to our operating profit of $63.3 million and February 26, 2017,$64.5 million and a corresponding increase to benefit plannon-service income of $63.3 million and $64.5 million, respectively. Stock-based compensation expense continuesThere were no changes to reflect estimated forfeitures.our reported segment operating profit.
In the first quarter of fiscal 2018,2019, we adopted new accounting requirements for the recognition of revenue from contracts with customers. Under the new standard, we apply a principles-based five step model to recognize revenue upon the transfer of control of promised goods to customers and in an amount that reflects the consideration for which permit reporting entitieswe expect to measurebe entitled to in exchange for those goods. The principles-based five step model includes: 1) identifying the contract(s) with a goodwill impairment losscustomer; 2) identifying the performance obligations in the contract; 3) determining the transaction price; 4) allocating the transaction price to the performance obligations in the contract; and 5) recognizing revenue when (or as) we satisfy a performance obligation.
Our revenues primarily result from contracts with customers, which are generally short-term and have a single performance obligation – the delivery of product. We recognize revenue for the sale of packaged foods at the point in time when our performance obligation has been satisfied and control of the product has transferred to our customer, which generally occurs when the shipment is accepted by our customer. Sales include shipping and handling charges billed to the customer and are reported net of variable consideration and consideration payable to our customers, including trade promotion, consumer coupon redemption and other costs, including estimated allowances for returns, unsalable product, and prompt pay discounts. Sales, use, value-added, and other excise taxes are not included in revenue. Trade promotions are recorded using significant judgment of estimated participation and performance levels for offered programs at the time of sale. Differences between estimated expenses and actual costs are recognized as a change in management estimate in a subsequent period. We generally do not allow a right of return. However, on a limitedcase-by-case basis with prior approval, we may allow customers to return product. In limited circumstances, product returned in saleable condition is resold to other customers or outlets. Receivables from customers generally do not bear interest. Payment terms and collection patterns are short-term, and vary around the world and by channel, and as such, we do not have any significant financing components. Our allowance for doubtful accounts represents our estimate of probablenon-payments and credit losses in our existing receivables, as determined based on a review of past due balances and other specific account data. Account balances are written off against the allowance when we deem the amount is uncollectible. See Note 16 for disaggregation of our revenue into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by whicheconomic factors. We do not have material contract assets or liabilities arising from our contracts with customers.
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We utilized a reporting unit’s carrying value exceedscomprehensive approach to evaluate and document the reporting unit’s 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 asimpact of the first dayguidance on our current accounting policies and practices. We did not identify any material differences resulting from applying the new requirements to our revenue contracts. Additionally, we did not identify any significant changes to our business processes, systems, and controls to support recognition and disclosure requirements under the new guidance.
We adopted the requirements of the secondnew standard and subsequent amendments to all contracts in the first quarter of fiscal 2018, and2019 using the adoptioncumulative effect approach. We recorded a $33.9 million cumulative effect adjustment net of this guidance did not impact our results of operations or financial position.
(18) Subsequent Event
Subsequentincome tax effects 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 quarteropening balance of fiscal 2018, we expect2019 retained earnings, a decrease to record total chargesdeferred income taxes of approximately $40$11.4 million, and an increase to $60other current liabilities of $45.3 million primarily reflecting employee termination benefits, allrelated to the timing of which will be cash. The majorityrecognition 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.certain promotional expenditures.
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| 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 Form10-K for the fiscal year ended May 28, 201727, 2018 for important background regarding, among other things, our key business drivers. Significant trademarks and service marks used in our business are set forth initalicsherein. 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 2018,2019, net sales increased 28 percent compared to the same period last year, primarily reflecting the addition of Blue Buffalo Pet Products, Inc. (Blue Buffalo). In the third quarter of fiscal 2019, organic net sales increased 1 percent compared to the same period last year. Operating profit margin of 15.5 percent increased 80 basis points, primarily driven by favorable foreign currency exchange and favorable net price realization and mix. Increased contributions from volume growth inmix across all segments and 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 growthaddition 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 fromyear-ago levels primarily driven by a decrease in restructuring expenses,Blue Buffalo, partially offset by lower segment operating profit results.increased restructuring expense and a divestiture loss. Adjusted operating profit margin decreased 120increased 230 basis points to 15.717.4 percent compared to the same period last year, primarily driven by higher input costs, partially offset by improvedfavorable net price realization and mix across all segments and lower media and advertising expense.the addition of Blue Buffalo. Diluted earnings per share of $1.62 increased 166$0.74 decreased 54 percent compared to the third quarter of fiscal 20172018 and adjusted diluted earnings per share of $0.79,$0.83, which excludes certain items affecting comparability, on a constant-currency basis increased 86 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 2019 follows:
| Quarter Ended Feb. 24, 2019 | In millions, except per share | Quarter Ended Feb. 24, 2019 vs. Feb. 25, 2018 | Percent of Net Sales | Constant- Currency Growth (a) | ||||||||||||
Net sales | $ | 4,198.3 | 8 | % | ||||||||||||
Operating profit | 651.3 | 14 | % | 15.5 | % | |||||||||||
Net earnings attributable to General Mills | 446.8 | (52 | )% | |||||||||||||
Diluted earnings per share | $ | 0.74 | (54 | )% | ||||||||||||
Constant-currency net sales growth rate (a) |
| 10 | % | |||||||||||||
Organic net sales growth rate (a) | 1 | % | ||||||||||||||
Total segment operating profit (a) | 795.2 | 27 | % | 27 | % | |||||||||||
Adjusted operating profit (a) | 729.7 | 24 | % | 17.4 | % | 25 | % | |||||||||
Diluted earnings per share, excluding certain items affecting comparability (a) | $ | 0.83 | 5 | % | 6 | % | ||||||||||
| (a) | See the“Non-GAAP Measures” section below for our use of measures not defined by GAAP. |
Consolidatednet sales were as follows:
| Quarter Ended | ||||||||||||
Feb. 24, 2019 | Feb. 24, 2019 vs Feb. 25, 2018 | Feb. 25, 2018 | ||||||||||
Net sales (in millions) | $ | 4,198.3 | 8 % | $ | 3,882.3 | |||||||
|
| |||||||||||
Contributions from volume growth (a) | 5 pts | |||||||||||
Net price realization and mix | 5 pts | |||||||||||
Foreign currency exchange | (2)pts | |||||||||||
| (a) | Measured in tons based on the stated weight of our product shipments. |
The 8 percent increase in net sales in the third quarter of fiscal 2019 reflects, favorable net price realization and mix and higher contributions from volume growth including the impact of Blue Buffalo.
26
Organic net sales increased 1 percent in the third quarter of fiscal 2019 driven by favorable organic net price realization and mix partially offset by declining contributions from organic volume growth.
Components of organic net sales growth are shown in the following table:
| Quarter Ended Feb. 24, 2019 vs. | ||||
| Quarter Ended Feb. 25, 2018 | ||||
Contributions from organic volume growth (a) | (2)pts | |||
Organic net price realization and mix | 3 pts | |||
Organic net sales growth | 1 pt | |||
Foreign currency exchange | (2)pts | |||
Acquisition and divestiture | 9 pts | |||
Net sales growth | 8 pts | |||
| (a) | Measured in tons based on the stated weight of our product shipments. |
Cost of salesincreased $130 million from the third quarter of fiscal 2018 to $2,755 million. The increase was primarily driven by a $130 million increase due to higher volume and a $12 million increase attributable to product rate and mix. We recorded a $6 million net decrease in cost of sales related to themark-to-market valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2019 compared to a net increase of $3 million in the third quarter of fiscal 2018. In addition, we recorded $3 million of restructuring initiative project-related costs in the third quarter of fiscal 2018 (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).
Selling, general, and administrative (SG&A) expensesincreased $17 million to $697 million in the third quarter of fiscal 2019 compared to the same period in fiscal 2018. The increase in SG&A expenses primarily reflects the addition of Blue Buffalo. SG&A expenses as a percent of net sales in the third quarter of fiscal 2019 decreased 90 basis points compared with the third quarter of fiscal 2018.
Divestiture losstotaled $35 million from the sale of ourLa Salteñafresh pasta and refrigerated dough business in Argentina during the third quarter of fiscal 2019.
Restructuring, impairment, and other exit coststotaled $60 million in the third quarter of fiscal 2019 compared to $8 million in the same period last year. We recorded restructuring charges of $59 million in the third quarter of fiscal 2019 related to actions to drive efficiencies in targeted areas of our global supply chain.
Benefit plannon-service incometotaled $21 million in the third quarter of fiscal 2019 compared to $23 million in the same period last year. Please refer to Note 17 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information.
Interest, netfor the third quarter of fiscal 2019 totaled $131 million, up $42 million from the third quarter of fiscal 2018, primarily driven by higher average debt balances due to financing for the Blue Buffalo acquisition.
Theeffective tax rate for the third quarter of fiscal 2019 was 17.7 percent compared to an 85.9 percent benefit for the third quarter of fiscal 2018. The 103.6 percentage point increase was primarily due to theone-time net benefit related to the Tax Cuts and Jobs Act (“TCJA”) in the third quarter of fiscal 2018. Our effective tax rate excluding certain items affecting comparability was 19.9 percent in the third quarter of fiscal 2019 compared to 15.2 percent in the third quarter of fiscal 2018 (see the“Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).
The TCJA includes provisions affecting our fiscal 2019 effective tax rate, including but not limited to: a reduction in the U.S. corporate tax rate on domestic operations to 21 percent; a provision that taxes U.S. allocated expenses and certain income from foreign operations (GILTI); a limitation on deductible interest expense; the repeal of the domestic manufacturing deduction; and a limitation on the deductibility of certain executive compensation. In the third quarter of fiscal 2019, we completed our accounting for the tax effects of the TCJA and recorded a benefit of $7 million which included adjustments to the transition tax and the measurement of our net U.S. deferred tax liability.
27
After-tax earnings from joint ventures for the third quarter of fiscal 2019decreased 29 percent to $12 million compared to $17 million in the same period in fiscal 2018, primarily driven by our $4 millionafter-tax share of restructuring charges at Cereal Partners Worldwide (CPW), and lower net sales and higher input costs forHäagen-Dazs Japan, Inc. (HDJ). On a constant-currency basis,after-tax earnings from joint ventures decreased 32 percent, including the CPW restructuring charge (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. 24, 2019 vs. | ||||||||||||
| Quarter Ended Feb. 25, 2018 | CPW | HDJ | Total | |||||||||
Contributions from volume growth (a) | (1)pt | (5)pts | ||||||||||
Net price realization and mix | 3 pts | Flat | ||||||||||
Net sales growth in constant currency | 2 pts | (5)pts | Flat | |||||||||
Foreign currency exchange | (8)pts | (1)pt | (6)pts | |||||||||
Net sales growth | (6)pts | (6)pts | (6)pts | |||||||||
| (a) | Measured in tons based on the stated weight of our product shipments. |
Average diluted shares outstandingincreased by 22 million in the third quarter of fiscal 2019 from the same period a year ago due to the impact of the share issuance to partially fund the acquisition of Blue Buffalo and option exercises.
Nine-Month Results
In the nine-month period ended February 24, 2019, net sales increased 7 percent compared to the same period last year, primarily reflecting the addition of Blue Buffalo. Organic net sales were flat in the nine-month period ended February 24, 2019. Operating profit margin of 14.2 percent decreased 170 basis points fromyear-ago levels primarily driven by impairment charges recorded for certain intangible and manufacturing assets, the purchase accounting inventory adjustment related to our acquisition of Blue Buffalo, increased restructuring expense, and a divestiture loss. Adjusted operating profit margin increased 60 basis points to 16.8 percent, primarily driven by favorable net price realization and mix and a decrease in SG&A expenses in our North America Retail segment. Diluted earnings per share of $1.96 decreased 36 percent in the nine-month period ended February 24, 2019, and adjusted diluted earnings per share of $2.39, which excludes certain items affecting comparability, on a constant-currency basis increased 3 percent compared to the same period 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 2018nine-month period ended February 24, 2019, 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 % | |||||||||||
| ||||||||||||||||
| Nine-Month Period Ended Feb. 24, 2019 | In millions, except per share | Nine-Month Period Ended Feb. 24, 2019 vs. Feb. 25, 2018 | Percent of Net Sales | Constant- Currency Growth (a) | ||||||||||||
Net sales | $ | 12,703.5 | 7 % | |||||||||||||
Operating profit | 1,799.8 | (4) % | 14.2 | % | ||||||||||||
Net earnings attributable to General Mills | 1,182.5 | (33) % | ||||||||||||||
Diluted earnings per share | $ | 1.96 | (36) % | |||||||||||||
Constant-currency net sales growth rate (a) |
| 9 | % | |||||||||||||
Organic net sales growth rate (a) | Flat | |||||||||||||||
Total segment operating profit (a) | 2,342.2 | 13 % | 13 | % | ||||||||||||
Adjusted operating profit (a) | 2,136.2 | 11 % | 16.8 | % | 11 | % | ||||||||||
Diluted earnings per share, excluding certain items affecting comparability (a) | $ | 2.39 | 3 % | | 3 | % | ||||||||||
(a) See the“Non-GAAP Measures” section below for our use of measures not defined by GAAP.
28
Consolidatednet sales were as follows:
| Quarter Ended | ||||||||||||||||||||||||
| Feb. 25, 2018 | Feb. 25, 2018 vs Feb. 26, 2017 | Feb. 26, 2017 | Nine-Month Period Ended | |||||||||||||||||||||
|
| Feb. 24, 2019 | Feb. 24, 2019 vs Feb. 25, 2018 | Feb. 25, 2018 | ||||||||||||||||||||
Net sales (in millions) | $ | 3,882.3 | 2 | % | $ | 3,793.2 | $ | 12,703.5 | 7 % | $ | 11,850.2 | |||||||||||||
| ||||||||||||||||||||||||
Contributions from volume growth (a) | (1 | )pt | 4 pts | |||||||||||||||||||||
Net price realization and mix | 1 | pt | 5 pts | |||||||||||||||||||||
Foreign currency exchange | 2 | pts | (2)pts | |||||||||||||||||||||
| ||||||||||||||||||||||||
| (a) | Measured in tons based on the stated weight of our product shipments. |
The 27 percent increase in net sales infor the third quarter of fiscal 2018 was primarily driven by favorable foreign currency exchange andnine-month period ended February 24, 2019, reflects favorable net price realization and mix. All four segments contributed tomix and higher contributions from volume growth including the increase in net sales in the third quarterimpact of fiscal 2018 compared to the same period last year.Blue Buffalo.
Organic net sales increased 1 percentwere flat in the third quarter of fiscal 2018 primarilynine-month period ended February 24, 2019, driven by favorable organic net price realization and mix. To improve comparability of resultsmix offset by declining contributions 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.volume growth.
Components of organic net sales growth are shown in the following table:
Nine-Month Period Ended Feb. 24, 2019 vs. | ||
Nine-Month Period Ended Feb. 25, 2018 | ||
Contributions from organic volume growth (a) | ||
Organic net price realization and mix | ||
Organic net sales growth | ||
Foreign currency exchange | ||
| ||
| 9 pts | ||
Net sales growth | ||
| (a) | Measured in tons based on the stated weight of our product shipments. |
Cost of salesincreased $142$574 million from the third quarter of fiscal 2017nine-month period ended February 25, 2018, to $2,627$8,408 million. The increase includedwas driven by a $180$350 million increase due to higher volume and a $151 million increase attributable to product rate and mix partially offset by a $24 million decrease attributable to lower volume.mix. We recorded a $3$53 million charge in the nine-month period ended February 24, 2019, related to the fair value adjustment of inventory acquired in the Blue Buffalo acquisition. We recorded a $36 million net increase in cost of sales related to themark-to-market valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2018nine-month period ended February 24, 2019, compared to a net decrease of $8$4 million in the third quarter of fiscal 2017.nine-month period ended February 25, 2018. We recorded immaterial$13 million of restructuring charges in cost of sales in the third quarter of fiscal 2018 compared to $16 million in the samenine-month period last year.ended February 25, 2018. We also recorded $3$1 million of restructuring initiative project-related costs in the third quarter of fiscal 2018nine-month period ended February 24, 2019, compared to $12$8 million of restructuring initiative project-related costs in the samenine-month period last yearended February 25, 2018 (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).
Selling, general, and administrative (SG&A)SG&A expensesdecreased $32increased $75 million to $655$2,193 million in the third quarter of fiscal 2018nine-month period ended February 24, 2019, compared to the same period in fiscal 2017.2018. The decreaseincrease in SG&A expenses primarily reflects a 22 percentage point decrease in media and advertising expense and savings from cost management initiatives. Inthe addition we recorded $4 million of transaction costs related to our planned acquisition of Blue Buffalo Pet Products, Inc., (“Blue Buffalo”).Buffalo. SG&A expenses as a percent of net sales in the third quarter of fiscal 2018nine-month period ended February 24, 2019, decreased 12060 basis points compared with the same period of fiscal 2018.
Divestiture losstotaled $35 million from the sale of ourLa Salteñafresh pasta and refrigerated dough business in Argentina during the third quarter of fiscal 2017.2019.
Restructuring, impairment, and other exit coststotaled $8$268 million in the third quarter of fiscal 2018nine-month period ended February 24, 2019, compared to $78$14 million in the same period last year. We recorded restructuring charges of $59 million in the nine-month period ended February 24, 2019 related to actions to drive efficiencies in targeted areas of our global supply chain. We also recorded impairment charges of $193 million in fiscal 2019 related to theProgresso,Food Should Taste Good, andMountain High brand intangible assets driven by lower future sales projections in our long-range plans for the businesses supporting these brand intangible assets. In addition, we recorded $14 million of charges related to the impairment of certain manufacturing assets within the North America Retail segment in the nine-month period ended February 24, 2019.
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 | ||||||||||||
For further information on these restructuring initiatives, pleaseBenefit plannon-service income totaled $63 million in the nine-month period ended February 24, 2019, compared to $64 million in the same period last year. Please refer to Note 317 to the Consolidated Financial Statements in Part 1,I, Item 1 of this report.report for additional information.
29
Interest, netfor the third quarternine-month period ended February 24, 2019, increased $160 million to $397 million compared to the same period of fiscal 2018, totaled $89 million, up $13 million from fiscal 2017, primarily driven by $14 million of charges relatedhigher average debt balances due 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.
Theeffective tax rate for the third quarter of fiscal 2018nine-month period ended February 24, 2019, was an 85.921.4 percent benefit compared to a 23.01.7 percent chargebenefit for the third quarter of fiscal 2017.same period last year. The 108.923.1 percentage point decrease in our effective tax rate as compared to the prior yearincrease 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).TCJA in fiscal 2018. Our effective tax rate excluding certain items affecting comparability was 15.222.2 percent in the third quarter of fiscal 2018nine-month period ended February 24, 2019, compared to 24.725.4 percent in the third quartersame period of fiscal 2017 (see2018. See the“Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). GAAP.
The 9.5 percentage point decrease in theTCJA includes provisions affecting our fiscal 2019 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, includingbut not limited to: a reduction in the U.S. corporate income tax rate implementationon domestic operations to 21 percent; a provision that taxes U.S. allocated expenses and certain income from foreign operations (GILTI); a limitation on deductible interest expense; the repeal of a territorial system,the domestic manufacturing deduction; and a deemed repatriation taxlimitation on untaxed foreign earnings. The TCJA also results in a U.S. federal blended statutory ratethe deductibility 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 iscertain executive compensation. In the third quarter of fiscal 2018. However, Accounting Standards Update2018-05:Income Taxes (Topic 740) (ASU2018-05) was issued with guidance allowing2019, we completed our accounting for the recognitiontax effects of provisional amounts in the event that the accounting is not completeTCJA and recorded a reasonable estimate can be made. The guidance allows for a measurement periodbenefit of up to one year to finalize the accounting related$7 million which included adjustments to the TCJA. See Note 15 totransition tax and the Consolidated Financial Statements in Part 1, Item 1measurement of this report for additional information.our net U.S. deferred tax liability.
After-tax earnings from joint venturesincreased $6 million decreased 19 percent to $17$52 million for the third quarter of fiscal 2018nine-month period ended February 24, 2019, compared to $64 million in the same period lastin fiscal year,2018, primarily driven by our $9 millionafter-tax share of restructuring charges at CPW and lower net sales and higher volume and favorable foreign currency exchangeinput costs for Cereal Partners Worldwide (CPW) and favorable foreign currency exchange forHäagen-Dazs Japan, Inc. (HDJ).HDJ. On a constant-currency basis,after-tax earnings from joint ventures increased 30decreased 19 percent (see the“Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The components of our joint ventures’ net sales growth are shown in the following table:
Nine-Month Period Ended Feb. 24, 2019 vs. | |||||||||||||||
| Nine-Month Period Ended Feb. 25, 2018 | CPW | HDJ | |||||||||||||
Contributions from volume growth (a) | |||||||||||||||
Net price realization and mix | |||||||||||||||
| |||||||||||||||
| |||||||||||||||
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 outstandingdecreased 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.
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 fromyear-ago levels primarily driven by lower segment operating profit results and unfavorablemark-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 | ) % | ||||||||||
Consolidatednet 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 | |||||||||||
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.
Components of organic net sales growth are shown in the following table:
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Cost of salesincreased $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 themark-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 expensesdecreased $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 | |||||||||||||||||||||||||||||||||
For further information on these restructuring initiatives, please refer to Note 3 to the Consolidated Financial Statements in Part 1, Item 1 of this report.
Interest, netfor 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.
Theeffective tax ratefor 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, ASU2018-05 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:
| 1 pt | |||||||||||
Net | Flat | (1)pt | ||||||||||
Foreign currency exchange | Flat | (4)pts | ||||||||||
Net sales growth | (6)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 outstandingdecreasedincreased by 1821 million in the nine-month period ended February 25, 2018,24, 2019, compared to the same period a year ago due to the impact of the share repurchases,issuance to partially offset byfund the acquisition of Blue Buffalo and option exercises.
SEGMENT OPERATING RESULTS
Our businesses are organized into fourfive operating segments: North America Retail; Convenience Stores & Foodservice; Europe & Australia; and Asia & Latin America.America; and Pet. We are reporting the Pet operating segment results on aone-month lag and accordingly, our fiscal 2018 results do not include Pet segment operating results. Please refer to Note 16 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 | Nine-Month Period Ended | 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 | Feb. 24, 2019 | Feb. 24, 2019 vs Feb. 25, 2018 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 24, 2019 vs Feb. 25, 2018 | Feb. 25, 2018 | |||||||||||||||||||||||||||||||||||||
Net sales (in millions) | $ | 2,517.4 | 1 % | $ | 2,499.0 | $ | 7,727.4 | (1)% | $ | 7,804.8 | $ | 2,518.6 | Flat | $ | 2,517.4 | $ | 7,583.5 | (2)% | $ | 7,727.4 | ||||||||||||||||||||||||||||
Contributions from volume growth (a) | 1 pt | Flat | (2 | )pts | (3)pts | |||||||||||||||||||||||||||||||||||||||||||
Net price realization and mix | (1)pt | (1)pt | 2 | pts | 2 pts | |||||||||||||||||||||||||||||||||||||||||||
Foreign currency exchange | 1 pt | Flat | Flat | (1)pt | ||||||||||||||||||||||||||||||||||||||||||||
| (a) | Measured in tons based on the stated weight of our product shipments. |
The 1 percent increase in North America Retail net sales were flat in the third quarter of fiscal 2019 compared to the same period in fiscal 2018, was driven by growth in the U.S. Meals & Baking, U.S. Snacksfavorable net price realization and Canada operating units partiallymix offset by declines in the U.S. Yogurt and U.S. Cereal operating units.
The 1 percenta decrease in contributions from volume growth.
30
North America Retail net sales fordecreased 2 percent in the nine-month period ended February 25,24, 2019, compared to the same period in fiscal 2018, wasprimarily driven by declinesa decrease in the U.S. Yogurtcontributions from volume growth and U.S. Cereal operating unitsunfavorable foreign currency exchange partially offset by growth in the U.S. Snacksfavorable net price realization and Canada operating units.mix.
The components of North America Retail organic net sales growth are shown in the following table:
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| Quarter Ended | Nine-Month Period Ended | |||||||||||
| Feb. 24, 2019 | Feb. 24, 2019 | |||||||||||
Contributions from organic volume growth (a) | (2 | )pts | (3 | )pts | ||||||||
Organic net price realization and mix | 2 | pts | 2 | pts | ||||||||
Organic net sales growth | Flat | (1 | )pt | |||||||||
Foreign currency exchange | Flat | (1 | )pt | |||||||||
Divestiture (b) | Flat | Flat | ||||||||||
Net sales growth | Flat | (2 | )pts | |||||||||
| (a) | Measured in tons based on the stated weight of our product shipments. |
| (b) | Related to the divestiture of North American Green Giant product lines. |
North America Retail organic net sales increased 1 percentwere flat in the third quarter of fiscal 2018,2019 compared to the same period in fiscal 2017,2018, driven by an increasefavorable organic net price realization and mix offset by a decrease in contributions from organic volume growth.
North America Retail organic net sales decreased 1 percentage pointpercent in the nine-month period ended February 25, 2018,24, 2019, compared to the same period in fiscal 2017,2018, driven by unfavorablea decrease in contributions from organic volume growth partially offset by favorable organic net price realization and mix.
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 | Quarter Ended | Nine-Month Period Ended | |||||||||||
|
| Feb. 24, 2019 | Feb. 24, 2019 | |||||||||||
U.S. Snacks | 3 % | 2 % | (1 | )% | (3 | )% | ||||||||
Canada (a) | 6 | 4 | (11 | ) | (7 | ) | ||||||||
U.S. Meals & Baking | 2 | Flat | 2 | (1 | ) | |||||||||
U.S. Yogurt and Other | (2 | ) | (3 | ) | ||||||||||
U.S. Cereal | (1) | (1) | 4 | Flat | ||||||||||
U.S. Yogurt | (8) | (14) | ||||||||||||
| ||||||||||||||
Total | 1 % | (1) % | Flat | (2 | )% | |||||||||
| ||||||||||||||
| (a) | On a |
Segment operating profit of $518increased 12 percent to $582 million in the third quarter of fiscal 2018 was flat2019 compared to $518 million in the same period of fiscal 2017 as higher net sales and reducedlast year, driven by lower SG&A expenses including a 27 percent decrease in media and advertising, were offset by higher input costs, including inflation.positive net price realization and mix. Segment operating profit was flatincreased 12 percent on a constant-currency basis in the third quarter of fiscal 20182019, compared to the third quarter ofsame period in fiscal 20172018 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Segment operating profit decreased 7increased 4 percent to $1,674$1,750 million in the nine-month period ended February 25, 2018,24, 2019, compared to $1,796$1,674 million in the same period of fiscal 2017,last year, primarily driven primarilyby lower SG&A expenses and positive net price realization and mix, partially offset by lower net sales including increased merchandising activity and higher input costs, including inflation, partially offset by reduced SG&A expenses.sales. Segment operating profit decreased 7increased 5 percent on a constant-currency basis in the first nine months of fiscal 2018nine-month period ended February 24, 2019, compared to the first nine months ofsame period in fiscal 20172018 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
31
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 | Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||||||||||||
Feb. 24, 2019 | Feb. 24, 2019 vs Feb. 25, 2018 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 24, 2019 vs Feb. 25, 2018 | Feb. 25, 2018 | |||||||||||||||||||||||||||||||||||||||||||
Net sales (in millions) | $ | 460.3 | 3 % | $ | 448.5 | $ | 1,419.6 | 3 % | $ | 1,382.3 | $ | 472.5 | 3 % | $ | 460.3 | $ | 1,450.1 | 2 % | $ | 1,419.6 | ||||||||||||||||||||||||||||
|
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Contributions from volume growth (a) | 1 pt | 1 pt | (2)pts | (2)pts | ||||||||||||||||||||||||||||||||||||||||||||
Net price realization and mix | 2 pts | 2 pts | 5 pts | 4 pts | ||||||||||||||||||||||||||||||||||||||||||||
| (a) | Measured in tons based on the stated weight of our product shipments. |
Convenience Stores & Foodservice net sales increased 3 percent forin the third quarter of fiscal 2019 compared to the same period in fiscal 2018, reflecting higherdriven by favorable net sales across Focus 6 platformsprice realization and benefitsmix partially offset by a decrease in contributions from market index pricing on bakery flour.volume growth.
Convenience Stores & Foodservice net sales increased 32 percent forin the nine-month period ended February 25,24, 2019, compared to the same period in fiscal 2018, reflecting higherdriven by favorable net sales across Focus 6 platformsprice realization and benefitsmix partially offset by a decrease in contributions from market index pricing on bakery flour.volume growth.
The components of Convenience Stores & Foodservice organic net sales growth are shown in the following table:
| Quarter Ended | Nine-Month Period Ended | |||||||
Feb. 2019 | Feb. | |||||||
| 24, 2019 | ||||||||
Contributions from organic volume growth (a) | ||||||||
Organic net price realization and mix | ||||||||
Organic net sales growth | 3 pts | |||||||
Net sales growth | 3 pts | |||||||
| (a) | Measured in tons based on the stated weight of our product shipments. |
Segment operating profit decreased 10increased 15 percent to $84$97 million in the third quarter of fiscal 20182019 compared to $94$84 million in the third quarter of fiscal 2017,same period last year, primarily driven by higher input costs, partially offset by higherpositive net sales.price realization and mix.
Segment operating profit decreased 7increased 10 percent to $276$303 million forin the nine-month period ended February 25, 2018,24, 2019, compared to $295$276 million in the same period of fiscal 2017,last year, primarily driven by higher input costs, partially offset by higherpositive net sales.price realization and mix.
Europe & Australia Segment Results
Europe & Australia net sales were as follows:
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended |
Nine-Month | |||||||||||||||||||||||||||||||||||||||||||||||
| 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 | Feb. 24, 2019 | Feb. 24, 2019 vs. Feb. 25, 2018 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 24, 2019 vs. Feb. 25, 2018 | Feb. 25, 2018 | |||||||||||||||||||||||||||||||||||||
Net sales (in millions) | $ | 469.8 | 11 % | $ | 424.5 | $ | 1,428.4 | 7 % | $ | 1,338.0 | $ | 432.7 | (8)% | $ | 469.8 | $ | 1,387.2 | (3)% | $ | 1,428.4 | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Contributions from volume growth (a) | (3) pts | (1) pt | (4)pts | (2)pts | ||||||||||||||||||||||||||||||||||||||||||||
Net price realization and mix | 2 pts | 2 pts | 2 pts | 2 pts | ||||||||||||||||||||||||||||||||||||||||||||
Foreign currency exchange | 12 pts | 6 pts | (6)pts | (3)pts | ||||||||||||||||||||||||||||||||||||||||||||
| (a) | Measured in tons based on the stated weight of our product shipments. |
The 11 percent increase in Europe & Australia net sales decreased 8 percent in the third quarter of fiscal 2019 compared to the same period in fiscal 2018, was driven primarily by favorableunfavorable foreign currency exchange.exchange and a decrease in contributions from volume growth partially offset by favorable net price realization and mix.
The 7 percent increase in
32
Europe & Australia net sales decreased by 3 percent in the nine-month period ended February 25,24, 2019, compared to the same period in fiscal 2018, was driven primarily by favorableunfavorable foreign currency exchange and highera decrease in contributions from volume growth partially offset by favorable net sales in the U.K. market.price realization and mix.
The components of Europe & Australia organic net sales growth are shown in the following table:
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| Quarter Ended | Nine-Month Period Ended | |||||||
| Feb. 24, 2019 | Feb. 24, 2019 | |||||||
Contributions from organic volume growth (a) | (4 | )pts | (2 | )pts | ||||
Organic net price realization and mix | 2 | pts | 2 | pts | ||||
Organic net sales growth | (2 | )pts | Flat | |||||
Foreign currency exchange | (6 | )pts | (3 | )pts | ||||
Net sales growth | (8 | )pts | (3 | )pts | ||||
| (a) | Measured in tons based on the stated weight of our product shipments. |
The 1 percent decrease in Europe & Australia organic net sales growthdecreased 2 percent in the third quarter of fiscal 2019 compared to the same period in fiscal 2018, was driven primarily by a decrease in contributions from organic volume growth.growth partially offset by favorable organic net price realization and mix.
The 1 percent increase in Europe & Australia organic net sales growthwere flat in the nine-month period ended February 25,24, 2019, compared to the same period in fiscal 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 3511 percent to $24 million in the third quarter of fiscal 2019 compared to $27 million in the third quarter of fiscal 2018 compared to $42 million in the same period of fiscal 2017 primarily driven by lower net sales and higher input cost inflation,costs, including currency-driven inflation on imported products in certain markets.markets, partially offset by lower SG&A expenses. Segment operating profit decreased 461 percent on a constant-currency basis in the third quarter of fiscal 20182019 compared to the third quarter ofsame period in fiscal 20172018 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Segment operating profit decreased 334 percent to $85$81 million in the nine-month period ended February 25, 2018,24, 2019, compared to $127$85 million in the same period of fiscal 20172018 primarily driven by higher input cost inflation,costs, including currency-driven inflation on imported products in certain markets.markets, partially offset by lower SG&A expenses. Segment operating profit decreased 38 percent on a constant-currency basis in the nine-month period ended February 25, 2018,24, 2019, was flat on a constant-currency basis compared to the same period ofin fiscal 20172018 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Asia & Latin America Segment Results
Asia & Latin America net sales were as follows:
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| 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 | Feb. 24, 2019 | Feb. 24, 2019 vs. Feb. 25, 2018 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 24, 2019 vs. Feb. 25, 2018 | Feb. 25, 2018 | |||||||||||||||||||||||||||||||||||||
Net sales (in millions) | $ | 434.8 | 3 % | $ | 421.2 | $ | 1,274.8 | (1)% | $ | 1,288.1 | $ | 427.7 | (2)% | $ | 434.8 | $ | 1,257.4 | (1)% | $ | 1,274.8 | ||||||||||||||||||||||||||||
Contributions from volume growth (a) | (9) pts | (11)pts | 2 pts | 3 pts | ||||||||||||||||||||||||||||||||||||||||||||
Net price realization and mix | 9 pts | 8 pts | 4 pts | 4 pts | ||||||||||||||||||||||||||||||||||||||||||||
Foreign currency exchange | 3 pts | 2 pts | (8)pts | (8)pts | ||||||||||||||||||||||||||||||||||||||||||||
| (a) | Measured in tons based on the stated weight of our product shipments. |
Asia & Latin America net sales increased 3decreased 2 percent in the third quarter of fiscal 20182019 compared to the same period in the priorlast year, with higher net sales across Asia marketsdriven primarily by unfavorable foreign currency exchange partially offset by lowerfavorable net sales across Latin America markets.price realization and mix and an increase in contributions from volume growth.
33
Asia & Latin America net sales declineddecreased 1 percent in the nine-month period ended February 25, 2018,24, 2019, 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,last year, driven primarily by unfavorable foreign currency exchange partially offset by higherfavorable net salesprice realization and mix and an increase in Asia markets.contributions from volume growth.
The components of Asia & Latin America organic net sales growth are shown in the following table:
| Quarter Ended | Nine-Month Period Ended | |||||||
Feb. 2019 | Feb. 2019 | |||||||
Contributions from organic volume growth (a) | ||||||||
Organic net price realization and mix | ||||||||
Organic net sales growth | ||||||||
Foreign currency exchange | ||||||||
Divestiture | (1)pt | Flat | ||||||
Net sales growth | (1)pt | |||||||
| (a) | Measured in tons based on the stated weight of our product shipments. |
Asia & Latin America organic net sales were flat forincreased 7 percent in the third quarter of fiscal 20182019 compared to the same period ofin fiscal 2017, reflecting a 9 percent decrease2018, primarily driven by favorable organic net price realization and mix and an increase in contributions from organic volume growth offset by a 9 percent increase in organic net price realization and mix.growth.
The 3 percent decrease in Asia & Latin America organic net sales forincreased 7 percent in the nine-month period ended February 25, 2018, was24, 2019, compared to the same period last year, driven by favorable organic net price realization and mix and an 11 percent decreaseincrease in contributions from organic volume growth, partially offset by an 8 percent increase in organic net price realization and mix.growth.
Segment operating profit decreased 121 percentincreased to $20 million in the third quarter of fiscal 2019 compared to a $2 million loss in the third quarter of fiscal 2018 primarily driven by favorable net price realization and mix and lower SG&A expenses partially offset by higher input costs.
Segment operating profit increased 65 percent to $50 million in the nine-month period ended February 24, 2019, compared to a $10$30 million profit in the same period of fiscal 2017last year primarily driven by favorable net price realization and mix and lower SG&A expenses partially offset by higher input costs, including currency driven inflation on imported products in certain markets, and an increase in SG&A expenses.costs. Segment operating profit decreased 134increased 42 percent on a constant-currency basis in the third quarter of fiscal 2018nine-month period ended February 24, 2019, compared to the third quarter ofsame period in fiscal 20172018 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Pet Segment Results
Pet net sales were as follows:
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||
| Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | |||||||||||||||||
Net sales (in millions) | $ | 346.8 | $ | - | $ | 1,025.3 | $ | - | ||||||||||||
Pet net sales and operating profit decreased 51 percent to $30in the third quarter of fiscal 2019 totaled $347 million and $73 million respectively. Pet operating profit includes $3 million of amortization of the customer list intangible asset.
Pet net sales and operating profit in the nine-month period ended February 25, 2018, compared to $6124, 2019 were $1,025 million inand $158 million respectively. The nine-month period ended February 24, 2019 includes results for 7 days of the same periodmonth of fiscal 2017 primarily driven by input cost inflation, including currency driven inflation on imported products in certain markets.acquisition. Segment operating profit decreased 56 percent on a constant-currency basis in the first nine monthsnine-month period ended February 24, 2019 includes a $53 million purchase accounting adjustment related to inventory acquired and $10 million of fiscal 2018 compared toamortization of the first nine months of fiscal 2017 (see the“Non-GAAP Measures” section below for our use of this measure not defined by GAAP).customer list intangible asset.
34
UNALLOCATED CORPORATE ITEMS
Unallocated corporate expense totaled $28$49 million in the third quarter of fiscal 20182019 compared to $42$51 million in the same period in fiscal 2017. In2018. During the third quarter of fiscal 2018,2019, we recorded $3a $16 million legal recovery related to our Yoplait SAS subsidiary. We also recorded $6 million of restructuring initiative project-relatedintegration costs in costthe third quarter of sales compared to $16fiscal 2019 and $4 million of restructuring charges and $12 million of restructuring initiative project-relatedacquisition transaction costs in cost of sales in the same period last year. In addition, weyear related to the acquisition of Blue Buffalo. We recorded a $3$6 million net increasedecrease in expense related to themark-to-market valuation of certain commodity positions and grain inventories in the third quarter of fiscal 20182019 compared to an $8a $3 million net decreaseincrease in expense in the same period last year. In addition, we recorded $4$3 million of acquisition transactionrestructuring initiative project-related costs related to our planned acquisitionin cost of Blue Buffalo.sales during the third quarter of 2018.
Unallocated corporate expense totaled $102$239 million in the nine-month period ended February 25, 2018,24, 2019, compared to $144$167 million in the same period last year. We recorded a $36 million net increase in expense related to themark-to-market valuation of certain commodity positions and grain inventories in the nine-month period ended February 24, 2019, compared to a $4 million net decrease in expense in the same period last year. We also recorded $21 million of integration costs in the nine-month period ended February 24, 2019, and $4 million of acquisition transaction costs in the same period last year related to the acquisition of Blue Buffalo. In the nine-month period ended February 24, 2019, we recorded a $16 million gain from a legal recovery related to our Yoplait SAS subsidiary and $13 million of gains related to certain investment valuation adjustments. In the nine-month period ended February 25, 2018, we recorded $13 million of restructuring charges and $8 million of restructuring initiative project-relatedproject 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.sales. In addition, we recorded a $4 million net decrease in expense related to themark-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,24, 2019, we recorded $4a $3 million of acquisition transaction costsloss related to the impact of hyperinflationary accounting for our planned acquisition of Blue Buffalo.Argentina subsidiary.
LIQUIDITY
During the nine-month period ended February 25, 2018,24, 2019, cash provided by operations was $2,135$2,028 million compared to $1,659$2,135 million in the same period last year. The $476$107 million increase isdecrease was primarily driven by a $764$358 million change in current assets and liabilities, partially offset by a $153$240 million change innon-cash restructuring, activities in the first nine months of fiscal 2018.impairment, and other exit costs. The $764$358 million change in current assets and liabilities iswas primarily due to changesdriven by a $336 million change 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, 2018,24, 2019, was $408 million, compared to $425 million comparable tofor the same period in fiscal 2017.2018. Investments of $398$368 million in land, buildings and equipment in the nine-month period ended February 25, 2018,24, 2019, decreased $77$30 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 receivedmade $49 million of other investments, primarily by our venture capital fund during 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.nine-month period ended February 24, 2019.
Cash used by financing activities during the nine-month period ended February 25, 2018,24, 2019, was $1,570$1,458 million compared to $1,083$1,570 million in the same period last year.in fiscal 2018. We had $724 million of net debt repayments in the nine-month period ended February 24, 2019, compared to $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. Sodiaal International (“Sodiaal”) made an additional investment of $56 million in our Yoplait SAS subsidiary during the nine-month period ended February 24, 2019. We paid $601 million in cash to repurchase common stock and paid $846$884 million of dividends in the first nine months of fiscal 20182019 compared to $1,651$846 million and $856 million, respectively, in the same period last year. In addition, we paid $601 million in cash to repurchase common stock during the nine-month period ended February 25, 2018.
As of February 25, 2018,24, 2019, we had $907$481 million of cash and cash equivalents held in foreign jurisdictions. AsHistorically, we have not provided deferred taxes on a result of the TCJA, the historic undistributed earningssignificant portion of our foreign subsidiaries will be taxed in the U.S. via theone-time repatriation tax in fiscal 2018. We arere-evaluating our indefinite reinvestment assertions inunremitted earnings. In connection with the TCJA. As of the end of the third quarter ofTCJA, we havere-evaluated our assertion and have concluded that although earnings prior to fiscal 2018 will remain permanently reinvested, we havewill no longer make a permanent reinvestment assertion beginning with our fiscal 2018 earnings. In fiscal 2018 we recorded a provisional estimate for local country withholding taxes related to certain entities from which we expect to beginbegan repatriating undistributed earnings. As a result of this transition tax, we may repatriate our cashearnings and cash equivalents held by our foreign subsidiaries without such funds being subjectwill continue 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 informationrecord local country withholding taxes on the indefinite reinvestment assertion.all future earnings.
35
CAPITAL RESOURCES
Our capital structure was as follows:
| In Millions | Feb. 25, 2018 | May 28, 2017 | Feb. 24, 2019 | May 27, 2018 | ||||||||||||
| ||||||||||||||||
Notes payable | $ | 1,210.8 | $ | 1,234.1 | $ | 1,971.3 | $ | 1,549.8 | ||||||||
Current portion of long-term debt | 1,250.5 | 604.7 | 1,407.2 | 1,600.1 | ||||||||||||
Long-term debt | 7,163.6 | 7,642.9 | 11,642.6 | 12,668.7 | ||||||||||||
| ||||||||||||||||
Total debt | 9,624.9 | 9,481.7 | 15,021.1 | 15,818.6 | ||||||||||||
Redeemable interest | 817.5 | 910.9 | 548.9 | 776.2 | ||||||||||||
Noncontrolling interests | 369.1 | 357.6 | 319.0 | 351.3 | ||||||||||||
Stockholders’ equity | 4,965.6 | 4,327.9 | 6,930.4 | 6,141.1 | ||||||||||||
| ||||||||||||||||
Total capital | $ | 15,777.1 | $ | 15,078.1 | $ | 22,819.4 | $ | 23,087.2 | ||||||||
| ||||||||||||||||
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 afee-paid commitment letter with certain lenders, pursuant to which such lenders have committed to provide a364-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 thefee-paid committed and uncommitted credit lines we had available as of February 25, 2018:24, 2019:
| In Billions | Facility Amount | Borrowed Amount | Facility Amount | Borrowed Amount | ||||||||||||
| ||||||||||||||||
Credit facility expiring: | ||||||||||||||||
February 2019 | $ | 8.5 | $ | - | ||||||||||||
May 2022 | 2.7 | - | $ | 2.7 | $ | - | ||||||||||
June 2019 | 0.2 | 0.2 | 0.2 | - | ||||||||||||
|
| |||||||||||||||
Total committed credit facilities | 11.4 | 0.2 | 2.9 | - | ||||||||||||
Uncommitted credit facilities | 0.5 | 0.2 | 0.7 | 0.2 | ||||||||||||
| ||||||||||||||||
Total committed and uncommitted credit facilities | $ | 11.9 | $ | 0.4 | $ | 3.6 | $ | 0.2 | ||||||||
| ||||||||||||||||
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 recentmark-to-market valuation (currently $252 million). On June 1, 2015,2018, the floating preferred return rate on GMC’s Class A Interests was reset to the sum of three-month LIBOR plus 125142.5 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.
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 holder’s 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, 2018,24, 2019, we recorded Sodiaal’s 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, 2018,24, 2019, the redemption value of the redeemable interest was $818$549 million, which approximates its fair value.
During the second quarter of fiscal 2019, Sodiaal made an additional investment of $56 million in Yoplait SAS.
Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of February 25, 2018,24, 2019, 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$1,407 million of long-term debt maturing in the next 12 months that is classified as current, including $1,150€300.0 million euro-denominated floating-rate notes due March 2019, $500 million of 5.652.2 percent notes due in FebruaryOctober 2019, and $100€500.0 million of 6.59 percent fixed rate medium termeuro-
36
denominated floating-rate notes due for remarketing in October 2018.January 2020. 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.
In March 2019, subsequent to the end of our fiscal third quarter, we issued €300.0 million principal amount of 0.0 percent fixed-rate notes due January 15, 2020. We may redeem the notes if certain tax laws change and we would be obligated to pay additional amounts on the notes. These notes are senior unsecured obligations that include a change of control repurchase provision. We intend to use the net proceeds, together with cash on hand, to repay our floating rate notes due March 2019.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There were no material changes outside the ordinary course of our business in our contractual obligations oroff-balance sheet arrangements during the third quarter of fiscal 2018.2019.
SIGNIFICANT ACCOUNTING ESTIMATES
Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in our Annual Report on Form10-K for the fiscal year ended May 28, 2017.27, 2018. The accounting policies used in preparing our interim fiscal 20182019 Consolidated Financial Statements are the same as those described in our Form10-K with the exception of the new accounting requirements adopted in the first quarter of fiscal 2018 for stock-based payments2019 related to the presentation of net periodic benefit expense, net periodic postretirement benefit expense, and goodwill impairment testing. Seenet periodic postemployment benefit expense and to revenue recognition. Please 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, 2018,24, 2019, are the same as those described in our Annual Report on Form10-K for the fiscal year ended May 28, 2017,27, 2018, with the exception of the new accounting requirements adopted in the first quarter of fiscal 20182019 for stock-based paymentspresentation of net periodic defined benefit pension expense, net periodic postretirement benefit expense 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,net periodic postemployment benefit expense, and provisional estimates recorded in the third quarter of fiscal 2018 in response to the TCJA (see below for further information).revenue recognition. 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 onOn December 22, 2017, ASUthe 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 a2018-05one-time was issued with guidance that allows us to record provisional amounts fordeemed repatriation tax on untaxed foreign earnings. The TCJA also resulted in a U.S. federal statutory tax rate of 21 percent in fiscal 2019. Generally, the impacts of the TCJAnew legislation would be required to be recorded in the period of enactment, which for which final accounting cannot be completed before we file our quarterly report on Form10-Q forus was the third quarter of fiscal 2018. For provisionsHowever, Accounting Standards Update2018-05: Income Taxes (Topic 740)(ASU 2018-05) was issued with guidance allowing for the recognition of provisional amounts in the tax law where we are unable to makeevent that the accounting is not complete and a reasonable estimate of the impact, thecan be made. The guidance allows usfor a measurement period of up to continueone year from the enactment date to applyfinalize the historical tax provisions in computing our income tax liability and deferred tax assets and liabilities asaccounting related to the TCJA. As of February 25, 2018. The guidance also allows us to finalize24, 2019, we have completed our accounting for the TCJA changes within one yeartax effects of the December 22, 2017 enactment date.TCJA. See Note 15 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information.
We testedperformed our annual goodwill and indefinite-lived intangible assets for impairment on our annual assessment date ontest as of the first day of the second quarter of fiscal 2018.2019. As a result of lower sales projections in our annual impairment assessment date, there was no impairment of ourlong-range plans for the businesses supporting theProgresso,Food Should Taste Good, andMountain Highbrand intangible assets, as their relatedwe recorded the following impairment charges:
| In Millions | Impairment Charge | Fair Value as of Nov. 25, 2018 | ||||||
Progresso | $ | 132.1 | $ | 330.0 | ||||
Food Should Taste Good | 45.1 | - | ||||||
Mountain High | 15.4 | - | ||||||
Total | $ | 192.6 | $ | 330.0 | ||||
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.
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All other intangible asset fair values were substantially in excess of the carrying values, except for theYokiand Progressobrand intangible assets and the Latin America reporting unit.unit and theYokibrand intangible asset. The excess fair valuevalues as of the fiscal 20182019 test date of theYokiandProgressobrand intangible assets and the Latin America reporting unit wasand theYoki brand intangible asset were as follows:
| In Millions | Carrying Value of Intangible Asset | Excess Fair Value as of Fiscal 2018 Test Date | Carrying Value of Intangible Asset | Excess Fair Value as of Fiscal 2019 Test Date | ||||||||||||
Latin America | $ | 209.0 | 7 | % | ||||||||||||
Yoki | $ | 138.2 | 1 | % | $ | 49.1 | 10 | % | ||||||||
Progresso | 462.1 | 6 | % | |||||||||||||
Latin America | $ | 272.0 | 21 | % | ||||||||||||
In addition, whileWhile having significant coverage as of our fiscal 20182019 assessment date, the Food Should Taste GoodPillsburyandGreen Giantbrand intangible assetsasset 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 entity’s 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 and subsequent amendments 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. The requirements of the new standard and subsequent amendments allow for either the modified retrospective transition approach, which requires application of the guidance in all comparative periods presented, or the cumulative effect adjustment approach, which requires application of the guidance at the adoption date. We are in the process of implementing lease accounting software andcurrently analyzing the impact of this standard on our results of operations and financial position.position by performing a comprehensive review of our lease portfolio. We are in the process of implementing lease accounting software, developing a centralized business process, and implementing corresponding controls. 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 quantifyreasonably estimate the expected financial impact at this time.
In May 2014, the FASB issued new accounting requirements for the recognition of revenue from contracts with customers. The requirements of the new standard and its subsequent amendments are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods, which for us is the first quarter of fiscal 2019. We expect to adopt this guidance 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.adjustment approach.
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 thesenon-GAAP financial measures, we are providing below a reconciliation of the differences between thenon-GAAP measure and the most directly comparable GAAP measure, an explanation of why we believe thenon-GAAP measure provides useful information to investors, and any additional purposes for which we use thenon-GAAP measure. Thesenon-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure.
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Net Sales Growth Rates on Constant-Currency Basis
We believe that this measure of net sales provides useful information to investors because it provides transparency to the underlying performance by excluding the effect that foreign currency exchange rate fluctuations have onyear-to-year comparability given volatility in foreign currency exchange markets.
Net sales growth rates on a constant-currency basis are calculated as follows:
Percentage Change in as Reported | Impact of Foreign Currency Exchange | Percentage Change in Net Sales on Constant- Currency Basis | ||||||||||
Quarter Ended Feb. 24, 2019 | 8 % | (2) pts | 10 % | |||||||||
Nine-Month Period Ended Feb. 24, 2019 | 7 % | (2) pts | 9 % | |||||||||
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 53rd week, when applicable, have onyear-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)% | ||||||||
| ||||||||||||
| Percentage Change in Total Segment Operating Profit as Reported | Impact of Foreign | Percentage Change in Total Segment Operating Profit on a Constant-Currency Basis | ||||||||||
Quarter Ended Feb. 24, 2019 | 27 % | Flat | 27 % | |||||||||
Nine-Month Period Ended Feb. 24, 2019 | 13 % | Flat | 13 % | |||||||||
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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 management’s judgment, significantly affect the year-over-year assessment of operating results.
| Quarter Ended | ||||||||||||||||||||
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| Feb. 25, 2018 | Feb. 26, 2017 | |||||||||||||||||||
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| 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 % | |||||||||||||
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| Nine-Month Period Ended | ||||||||||||||||||||||||||||||||||||
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| Feb. 25, 2018 | Feb. 26, 2017 | |||||||||||||||||||||||||||||||||||
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| Quarter Ended | ||||||||||||||||||||||||||||||||
| Feb. 24, 2019 | Feb. 25, 2018 | |||||||||||||||||||||||||||||||||||
| In Millions | Value | Percent of Net Sales | Value | Percent of Net Sales | Value | Percent of Net Sales | Value | Percent of Net Sales | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Operating profit as reported | $ | 1,948.3 | 16.4 | % | $ | 1,957.2 | 16.6 % | $ | 651.3 | 15.5 % | $ | 569.5 | 14.7 % | |||||||||||||||||||||||
Mark-to-market effects (a) | (3.5 | ) | - | % | (20.7 | ) | (0.2)% | (6.5) | (0.1)% | 2.8 | 0.1 % | |||||||||||||||||||||||||
Restructuring charges (b) | 27.3 | 0.2 | % | 208.3 | 1.8 % | 58.6 | 1.4 % | 7.6 | 0.1 % | |||||||||||||||||||||||||||
Project-related costs (b) | 8.4 | 0.1 | % | 36.4 | 0.3 % | 0.1 | - % | 3.0 | 0.1 % | |||||||||||||||||||||||||||
Asset impairments (b) | 1.2 | - % | - | - % | ||||||||||||||||||||||||||||||||
Acquisition transaction and integration costs (c) | 5.8 | 0.1 % | 3.5 | 0.1 % | ||||||||||||||||||||||||||||||||
Divestiture loss (c) | - | - | % | 13.5 | 0.1 % | 35.4 | 0.9 % | - | - % | |||||||||||||||||||||||||||
Acquisition transaction costs (c) | 3.5 | - | % | - | - | |||||||||||||||||||||||||||||||
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Legal recovery (f) | (16.2) | (0.4)% | - | - % | ||||||||||||||||||||||||||||||||
Adjusted operating profit | $ | 1,984.0 | 16.7 | % | $ | 2,194.7 | 18.6 % | $ | 729.7 | 17.4 % | $ | 586.4 | 15.1 % | |||||||||||||||||||||||
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| Nine-Month Period Ended | ||||||||||||||||||||||||||||||||||||
| Feb. 24, 2019 | Feb. 25, 2018 | |||||||||||||||||||||||||||||||||||
| In Millions | Value | Percent of Net Sales | Value | Percent of Net Sales | ||||||||||||||||||||||||||||||||
Operating profit as reported | $ | 1,799.8 | 14.2 % | $ | 1,883.8 | 15.9 % | ||||||||||||||||||||||||||||||
Mark-to-market effects (a) | 36.4 | 0.3 % | (3.5) | - % | ||||||||||||||||||||||||||||||||
Restructuring charges (b) | 61.0 | 0.5 % | 27.3 | 0.2 % | ||||||||||||||||||||||||||||||||
Project-related costs (b) | 1.3 | - % | 8.4 | 0.1 % | ||||||||||||||||||||||||||||||||
Asset impairments (b) | 207.0 | 1.6 % | - | - % | ||||||||||||||||||||||||||||||||
Acquisition transaction and integration costs (c) | 21.3 | 0.1 % | 3.5 | - % | ||||||||||||||||||||||||||||||||
Divestiture loss (c) | 35.4 | 0.3 % | - | - % | ||||||||||||||||||||||||||||||||
Hyperinflationary accounting (d) | 3.2 | - % | - | - % | ||||||||||||||||||||||||||||||||
Investment valuation adjustments (e) | (13.0) | (0.1)% | - | - % | ||||||||||||||||||||||||||||||||
Legal recovery (f) | (16.2) | (0.1)% | - | - % | ||||||||||||||||||||||||||||||||
Adjusted operating profit | $ | 2,136.2 | 16.8 % | $ | 1,919.5 | 16.2 % | ||||||||||||||||||||||||||||||
| (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. |
| (d) | Represents the impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019. |
| (e) | Represents valuation gains on certain corporate investments. |
| (f) | Represents a legal recovery related to our Yoplait SAS subsidiary. |
Adjusted Operating Profit Growth Excluding Certain Items Affecting Comparability on a Constant-Currency Basis
We believe that this measure provides useful information to investors because it is the operating profit measure we use to evaluate operating profit performance on a comparable year-over-year basis. The adjustments are either items resulting from infrequently occurring events or items that, in management’s judgement, significantly affect the year-over-year assessment of operating results. Additionally, the adjustments are evaluated on a constant-currency basis by excluding the effect that foreign currency exchange rate fluctuations have onyear-to-year comparability given the volatility in foreign currency exchange rates.
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Our adjusted operating profit growth excluding certain items affecting comparability on a constant-currency basis is calculated as follows:
| Quarter Ended | Nine-Month Period Ended | �� | |||||||||||||
| Feb. 24, 2019 vs. | Feb. 24, 2019 vs. | ||||||||||||||
| Feb. 25, 2018 | Feb. 25, 2018 | ||||||||||||||
Operating profit growth as reported | 14 pts | (4)pts | |||||||||||||
Mark-to-market effects (a) | (2)pts | 2 pts | |||||||||||||
Restructuring charges (b) | 9 pts | 2 pts | |||||||||||||
Project-related costs (b) | Flat | (1)pt | |||||||||||||
Asset impairments (b) | Flat | 11 pts | |||||||||||||
Acquisition transaction and integration costs | Flat | 1 pt | |||||||||||||
Divestiture loss (c) | 6 pts | 2 pts | |||||||||||||
Investment valuation adjustments (d) | Flat | (1)pt | |||||||||||||
Legal recovery (e) | (3)pts | (1)pt | |||||||||||||
Adjusted operating profit growth excluding items affecting comparability | 24 pts | 11 pts | |||||||||||||
Foreign currency exchange impact | (1)pt | Flat | |||||||||||||
Adjusted operating profit growth, excluding items affecting comparability, on a constant-currency basis | 25 pts | 11 pts | |||||||||||||
| (a) | See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of |
| (b) | See Note 3 to the Consolidated Financial Statements in |
| (c) | See Note 2 to the |
| (d) | Represents valuation gains on certain corporate investments. |
| (e) | Represents a legal recovery related to our Yoplait SAS subsidiary. |
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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 management’s 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Per Share Data | Feb. 25, 2018 | Feb. 26, 2017 | Change | Feb. 25, 2018 | Feb. 26, 2017 | Change | Feb. 24, 2019 | Feb. 25, 2018 | Change | Feb. 24, 2019 | Feb. 25, 2018 | Change | ||||||||||||||||||||||||||||||||||||||||
Diluted earnings per share, as reported | $ | 1.62 | $ | 0.61 | 166 | % | $ | 3.05 | $ | 2.08 | 47 | % | $ | 0.74 | $ | 1.62 | (54 | ) | % | $ | 1.96 | $ | 3.05 | (36 | ) | % | ||||||||||||||||||||||||||
Provisional net tax benefit (a) | (0.86 | ) | - | (0.86 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||
Net tax benefit (a) | (0.01 | ) | (0.86 | ) | (0.01 | ) | (0.86 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Tax adjustment (b) | - | - | 0.07 | - | - | - | - | 0.07 | ||||||||||||||||||||||||||||||||||||||||||||
Mark-to-market effects (c) | - | (0.01 | ) | - | (0.02 | ) | (0.01 | ) | - | 0.05 | - | |||||||||||||||||||||||||||||||||||||||||
Acquisition transaction and integration costs (d) | 0.01 | 0.02 | 0.03 | 0.02 | ||||||||||||||||||||||||||||||||||||||||||||||||
Divestiture loss (d) | - | - | - | 0.01 | 0.03 | - | 0.03 | - | ||||||||||||||||||||||||||||||||||||||||||||
Acquisition transaction costs (d) | 0.02 | - | 0.02 | - | ||||||||||||||||||||||||||||||||||||||||||||||||
CPW restructuring charges (e) | - | - | 0.01 | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring charges | 0.01 | 0.11 | 0.03 | 0.24 | 0.08 | 0.01 | 0.08 | 0.03 | ||||||||||||||||||||||||||||||||||||||||||||
Project-related costs | - | 0.01 | 0.01 | 0.04 | - | - | - | 0.01 | ||||||||||||||||||||||||||||||||||||||||||||
Asset impairments (f) | - | - | 0.26 | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment valuation adjustments (g) | - | - | (0.01 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||
Legal recovery (h) | (0.01 | ) | - | (0.01 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||
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Diluted earnings per share, excluding certain items affecting comparability | $ | 0.79 | $ | 0.72 | 10 | % | $ | 2.32 | $ | 2.35 | (1 | ) % | $ | 0.83 | $ | 0.79 | 5 | % | $ | 2.39 | $ | 2.32 | 3 | % | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency exchange impact | 2 | pts | 1 | pt | (1 | ) | pt | Flat | ||||||||||||||||||||||||||||||||||||||||||||
Diluted earnings per share growth, excluding certain items affecting comparability, on a constant-currency basis | 8 | % | (2 | ) % | 6 | % | 3 | % | ||||||||||||||||||||||||||||||||||||||||||||
| (a) | See Note 15 to the Consolidated Financial Statements in Part I, |
| (b) | Represents a prior period adjustment recorded in the |
| (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. |
| (e) | The CPW restructuring charges are related to initiatives designed to improve profitability and growth that were approved in fiscal 2018 and 2019. |
| (f) | See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report. |
| (g) | Represents valuation gains on certain corporate investments. |
| (h) | Represents a legal recovery related to our Yoplait SAS subsidiary. |
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.
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Constant-CurrencyAfter-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 onyear-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 as Reported | Impact of Foreign Currency Exchange | Percentage Change in After- Tax Earnings from Joint | ||||||||||
Quarter Ended Feb. 25, 2018 | 51 | % | 21 pts | 30 | % | |||||||
Nine-Month Period Ended Feb. 25, 2018 | (2 | )% | 2 pts | (4 | )% | |||||||
Percentage Change in After- Tax Earnings from Joint Ventures as Reported Percentage Change in After- Tax Earnings from Joint Ventures on Constant- Quarter Ended Feb. 24, 2019 Nine-Month Period Ended Feb. 24, 2019 Impact of Foreign
Currency
Exchange
Currency Basis (29)% 3 pts (32)% (19)% Flat (19)%
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 onyear-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 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 | |||||||
Percentage Change in as Reported | Impact of Foreign Currency Exchange | Percentage Change in Net Sales on Constant- Currency Basis | ||||||||||
Quarter Ended Feb. 24, 2019 | (11)% | (5) pts | (6)% | |||||||||
Nine-Month Period Ended Feb. 24, 2019 | (7)% | (3) pts | (4)% | |||||||||
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 onyear-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. 24, 2019 | ||||||||||||||||||||||
Percentage Change in Operating Profit as Reported | Impact of Foreign Currency | Percentage Change in Operating Profit on Constant-Currency Basis | ||||||||||||||||||||
North America Retail | 12 % | Flat | 12 % | |||||||||||||||||||
Europe & Australia | (11)% | (10)pts | (1)% | |||||||||||||||||||
| Quarter Ended Feb. 25, 2018 | Nine-Month Period Ended Feb. 24, 2019 | |||||||||||||||||||||
Percentage Change in as Reported | Impact of Foreign Currency Exchange | Percentage Change in Operating Profit on Constant-Currency Basis | Percentage Change in as Reported | Impact of Foreign Currency Exchange | Percentage Change in Operating Profit on Constant-Currency Basis | |||||||||||||||||
North America Retail | Flat | Flat | Flat | 4 % | (1)pt | 5 % | ||||||||||||||||
Europe & Australia | (35)% | 11 pts | (46 | )% | (4)% | (4)pts | Flat | |||||||||||||||
Asia & Latin America | (121)% | 13 pts | (134 | )% | 65 % | 23 pts | 42 % | |||||||||||||||
| Nine-Month Period Ended Feb. 25, 2018 | ||||||||||||||||||||||
Percentage Change in 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 | )% | ||||||||||||||||||
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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 | Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Feb. 25, 2018 | Feb. 26, 2017 | Feb. 25, 2018 | Feb. 26, 2017 | Feb. 24, 2019 | Feb. 25, 2018 | Feb. 24, 2019 | Feb. 25, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | 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 | $541.9 | $95.8 | $503.4 | $(432.5) | $1,466.1 | $313.1 | $1,711.7 | $(29.1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provisional tax benefit (b) | - | 503.8 | - | - | - | 503.8 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net tax benefit (b) | - | 7.2 | - | 503.8 | - | 7.2 | - | 503.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mark-to-market effects (c) | 2.8 | 1.2 | (8.2 | ) | (3.1 | ) | (3.5 | ) | (1.1 | ) | (20.7 | ) | (7.7 | ) | (6.5) | (1.5) | 2.8 | 1.2 | 36.4 | 8.4 | (3.5) | (1.1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring charges (d) | 7.6 | 0.8 | 94.0 | 31.0 | 27.3 | 6.7 | 208.3 | 66.7 | 58.6 | 12.3 | 7.6 | 0.8 | 61.0 | 12.5 | 27.3 | 6.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Project-related costs (d) | 3.0 | 0.7 | 11.5 | 4.1 | 8.4 | 2.5 | 36.4 | 13.1 | 0.1 | - | 3.0 | 0.7 | 1.3 | 0.3 | 8.4 | 2.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset impairments (d) | 1.2 | 0.3 | - | - | 207.0 | 47.7 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition transaction and integration costs (e) | 5.8 | 1.3 | 19.4 | 5.6 | 21.3 | 4.9 | 19.4 | 5.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Divestiture loss (e) | - | - | - | - | - | - | 13.5 | 4.3 | 35.4 | 13.6 | - | - | 35.4 | 13.6 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition transaction costs (e) | 19.4 | 5.6 | - | - | 19.4 | 5.6 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax adjustment (f) | - | 1.7 | - | - | - | (40.5 | ) | - | - | - | - | - | 1.7 | - | - | - | (40.5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hyperinflationary accounting (g) | - | - | - | - | 3.2 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment valuation adjustments (h) | - | - | - | - | (13.0) | (3.0) | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal recovery (i) | (16.2) | (5.4) | - | - | (16.2) | (5.4) | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As adjusted | $536.2 | $81.3 | $563.4 | $139.0 | $1,763.3 | $447.9 | $1,968.9 | $587.4 | $620.3 | $123.6 | $536.2 | $81.3 | $1,802.5 | $399.3 | $1,763.3 | $447.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Effective tax rate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As reported | (85.9)% | 23.0% | (1.7)% | 29.5% | 17.7% | (85.9%) | 21.4% | (1.7%) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As adjusted | 15.2% | 24.7% | 25.4% | 29.8% | 19.9% | 15.2% | 22.2% | 25.4% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sum of adjustment to income taxes | $ 513.8 | $ 32.0 | $ 477.0 | $ 76.4 | $ | 27.8 | $ | 513.8 | $ | 86.2 | $ | 477.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average number of common shares - diluted EPS | Average number of common shares - diluted EPS |
| 582.7 | 591.4 | 583.2 | 601.1 | 604.5 | 582.7 | 604.0 | 583.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impact of income tax adjustments on diluted EPS excluding certain items affecting comparability | Impact of income tax adjustments on diluted EPS excluding certain items affecting comparability |
| $0.88 | $0.05 | $0.82 | $0.13 | $0.04 | $0.88 | $0.14 | $0.82 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a) | Earnings before income taxes andafter-tax earnings from joint ventures. |
| (b) | See Note 15 to the Consolidated Financial Statements in Part |
| (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. |
| (f) | Represents a prior period adjustment recorded in the second quarter of fiscal 2018. |
| (g) | Represents the impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019. |
| (h) | Represents valuation gains on certain corporate investments. |
| (i) | Represents a legal recovery related to |
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
44
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 management’s 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 instrument’s 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.
Netmark-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 53rd week impact, when applicable.
Project-related costs.Costs incurred related to our restructuring initiatives not included in restructuring charges.
45
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.
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 Form10-K for the fiscal year ended May 28, 2017 and Item 1A of Part II in this report,27, 2018, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The estimated maximum potentialvalue-at-risk arising from aone-day loss in fair value for our interest rate, foreign exchange, commodity, and equity market-risk-sensitive instruments outstanding as of February 25, 201824, 2019 was $30$50 million, $22$18 million, $2 million, and $1$2 million, respectively. During the nine-month period ended February 25, 2018,24, 2019, the interest ratevalue-atvalue-at-risk risk increased by $5$17 million whileand the foreign exchange and commodityvalue-at-risk decreased by $3 million, while commodity and $1 million, respectively. The equityvalue-at-risk waswere flat compared to this measurethese measures as of May 28, 2017.27, 2018. Thevalue-at-risk for interest ratesrate positions increased due to our use of treasury rate locks in connection with planned debt financing forhigher market volatility
46
and the Blue Buffalo acquisition. Thevalue-at-risk for foreign exchange and commoditypositions decreased due to lowerdecreased market volatility. For additional information, see Item 7A of Part II of our Annual Report on Form10-K for the fiscal year ended May 28, 2017.27, 2018.
Item 4. Controls and Procedures.
We, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule13a-15(e) under the Securities Exchange Act of 1934). Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of February 25, 2018,24, 2019, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting (as defined in Rule13a-15(f) under the Securities Exchange Act of 1934) during the quarter ended February 25, 201824, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
There can be no assurance that we will successfully complete our acquisition (the “Acquisition”) of Blue Buffalo Pet Products, Inc. (“Blue Buffalo”) on the terms or timetable currently proposed or at all.
No assurance can be given that the Acquisition will be completed when expected, on the terms proposed or at all. Each party’s obligation to consummate the Acquisition is subject to certain conditions, including, among others: (i) expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (ii) the absence of any order issued by any court of competent jurisdiction or governmental entity or any applicable law or other legal restraint, injunction, or prohibition that makes consummation of the Acquisition illegal or otherwise prohibited; and (iii) the passing of twenty days from the date on which Blue Buffalo mails to Blue Buffalo’s stockholders a Schedule 14C Information Statement in definitive form pursuant to rules adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Our obligation to consummate the Acquisition is also conditioned on, among other things, the absence of any Company Material Adverse Effect (as defined in the Agreement and Plan of Merger, dated February 22, 2018 (the “Merger Agreement”), by and among General Mills, Inc., Blue Buffalo, and Bravo Merger Corp.). There can be no assurance that the conditions to closing will be satisfied or waived or that other events will not intervene to delay or prevent the completion of the Acquisition.
We intend to finance a portion of the purchase price for the Acquisition with the net proceeds from an offering of debt securities and an offering of approximately $1.0 billion in equity securities. However, there can be no assurance that we will be successful in raising sufficient funds therefrom. Although we entered into a Commitment Letter, dated February 22, 2018 (the “Commitment Letter”), with Goldman Sachs Bank USA (“GS Bank”) and Goldman Sachs Lending Partners LLC (together with GS Bank, “Goldman Sachs”), pursuant to which and subject to the terms and conditions set forth therein Goldman Sachs has agreed to provide a senior unsecured364-day bridge term loan credit facility (the “Bridge Facility”) of up to $8.5 billion in the aggregate for the purpose of providing the financing necessary to fund the consideration to be paid pursuant to the terms of the Merger Agreement and related fees and expenses, the funding of the Bridge Facility is contingent on the satisfaction of certain customary conditions set forth in the Commitment Letter, including, among others, (i) the execution and delivery of definitive documentation with respect to the Bridge Facility in accordance with the terms sets forth in the Commitment Letter and (ii) the consummation of the transaction in accordance with the Merger Agreement. We cannot assure you that we will be able to satisfy such conditions.
We have incurred and will continue to incur significant transaction costs in connection with the Acquisition that could adversely affect our results of operations.
Whether or not we complete the Acquisition, we have incurred, and will continue to incur, significant transaction costs in connection with the Acquisition, including payment of certain fees and expenses incurred in connection with the Acquisition and related financing transactions. Additional unanticipated costs may be incurred in the integration process. These could adversely affect our results of operations in the period in which such expenses are recorded or our cash flow in the period in which any related costs are actually paid. Furthermore, we may incur material restructuring charges in connection with the Acquisition, which may adversely affect our operating results following the closing of the Acquisition in which such expenses are recorded or our cash flow in the period in which any related costs are actually paid. A delay in closing or a failure to complete the Acquisition could have a negative impact on our business.
We may fail to realize all of the anticipated benefits of the Acquisition or those benefits may take longer to realize than expected.
Our ability to realize the anticipated benefits of the Acquisition will depend, to a large extent, on our ability to integrate Blue Buffalo, which is a complex, costly and time-consuming process. We have never operated in the pet food sector and our lack of experience in this sector may hinder our ability to manage Blue Buffalo successfully following the Acquisition.
The integration process may disrupt our business and, if implemented ineffectively, could restrict the realization of the full expected benefits. The failure to meet the challenges involved in the integration process and to realize the anticipated benefits of the Acquisition could cause an interruption of, or a loss of momentum in, our operations and could adversely affect our business, financial condition and results of operations.
In addition, the integration of Blue Buffalo may result in material unanticipated problems, expenses, liabilities, competitive responses, and loss of customers and other business relationships. Additional integration challenges include:
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues, and diversion of management’s time and energy, which could adversely affect our business, financial condition, and results of operations and result in us becoming subject to litigation. In addition, even if Blue Buffalo is integrated successfully, the full anticipated benefits of the Acquisition may not be realized, including the synergies, cost savings or sales or growth opportunities that are anticipated. These benefits may not be achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may be incurred in the integration process. All of these factors could cause reductions in our earnings per share and decrease or delay the expected accretive effect of the Acquisition. As a result, it cannot be assured that the Acquisition will result in the realization of the full or any anticipated benefits.
The pendency of the Acquisition could adversely affect our business, financial results and operations.
The announcement and pendency of the Acquisition could cause disruptions and create uncertainty surrounding our business and affect our relationships with our customers and employees. In addition, we have diverted, and will continue to divert, significant management resources to complete the Acquisition, which could have a negative impact on our ability to manage existing operations or pursue alternative strategic transactions, which could adversely affect our business, financial condition and results of operations.
If the Acquisition is completed, Blue Buffalo may underperform relative to our expectations.
Following completion of the Acquisition, we may not be able to maintain the growth rate, levels of revenue, earnings, or operating efficiency that we and Blue Buffalo have achieved or might achieve separately. The business and financial performance of Blue Buffalo are subject to certain risks and uncertainties. Our failure to do so could have a material adverse effect on our financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table sets forth information with respect to shares of our common stock that we purchased during the quarter ended February 25, 2018:24, 2019:
| Period | Total Number of Shares Purchased (a) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Program (b) | Maximum Number of Shares that may yet be Purchased Under the Program (b) | ||||||||||||
| ||||||||||||||||
November 27, 2017- | ||||||||||||||||
December 31, 2017 | - | $ | - | - | 39,536,849 | |||||||||||
| ||||||||||||||||
January 1, 2018- | ||||||||||||||||
January 28, 2018 | 7,328 | 59.29 | 7,328 | 39,529,521 | ||||||||||||
| ||||||||||||||||
January 29, 2018- | ||||||||||||||||
February 25, 2018 | 4,267 | 57.88 | 4,267 | 39,525,254 | ||||||||||||
| ||||||||||||||||
Total | 11,595 | $ | 58.77 | 11,595 | 39,525,254 | |||||||||||
| ||||||||||||||||
| Period | Total Number of Shares | Average Price Paid Per Share | Total Number of Shares Purchased as Part | Maximum Number of Shares that may yet be Purchased Under the Program (b) | ||||||||||||
November 26, 2018 | ||||||||||||||||
December 30, 2018 | - | $ | - | - | 39,509,064 | |||||||||||
December 31, 2018 | ||||||||||||||||
January 27, 2019 | 6,072 | 38.94 | 6,072 | 39,502,992 | ||||||||||||
January 28, 2019 | ||||||||||||||||
February 24, 2019 | 4,126 | 44.24 | 4,126 | 39,498,866 | ||||||||||||
Total | 10,198 | $ | 41.08 | 10,198 | 39,498,866 | |||||||||||
| (a) | The total number of shares purchased |
| (b) | On May 6, 2014, our Board of Directors approved an authorization for the repurchase of up to 100,000,000 shares of our common stock. Purchases can be made in the open market or in privately negotiated transactions, including the use of call options and other derivative instruments, Rule10b5-1 trading plans, and accelerated repurchase programs. The Board did not specify an expiration date for the authorization. |
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In connection with the preparation of this Form10-Q for the fiscal quarter ended February 25, 2018, we identified the following transaction which may be subject to the disclosure requirements of Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Securities Exchange Act of 1934. In January 2018, an indirect wholly-owned foreign subsidiary of General Mills made two shipments of flour produced in India to a distributor in the United Arab Emirates for distribution to customers in the United Arab Emirates, Kuwait, Bahrain, Oman and Qatar. An unrelated third party responsible for arranging transportation originally booked shipment of the flour onnon-Iranian flag vessels, but subsequently, without the knowledge or consent of our foreign subsidiary or of General Mills, rebooked the shipments on Iranian flag vessels owned by Islamic Republic of Iran Shipping Lines (IRISL). The gross sale proceeds received by our foreign subsidiary from the two shipments of flour totaled $56,319, and our foreign subsidiary paid the freight forwarder in Indian Rupees a total of approximately INR26,316, or the US dollar equivalent of approximately $400, for the cost of shipping. We do not intend to make any future shipments using IRISL vessels.
Item 6. | ||||
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
| 101 | Financial Statements from the Quarterly Report on Form10-Q of the Company for the quarter ended February | |||
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GENERAL MILLS, INC. | ||||||
| (Registrant) | ||||||
Date March 20, 2019 | /s/ Kofi A. Bruce | |||||
Kofi A. Bruce | ||||||
Vice President, Controller | ||||||
(Principal Accounting Officer and Duly Authorized Officer) | ||||||
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