GENERAL MILLS, INC. EXECUTIVE OVERVIEW
We are a global packaged foods company. We develop distinctive value-added food products and market them under unique brand names. We work continuously to improve our core products and to create new products that meet consumers' evolving needs and preferences. In addition, we build the equity of our brands over time with strong consumer-directed marketing, innovative new products, and effective merchandising. We believe our brand-building strategy is the key to winning and sustaining leading share positions in markets around the globe.
Our fundamental financial goal is to generate superior returns for our shareholders over the long term. We believe achieving that goal requires us to generate a consistent balance of net sales growth, margin expansion, cash conversion, and cash return to shareholders over time.
Fiscal 2020 was a year of significant challenge and change in the external environment, and we adapted and executed to deliver strong financial results while remaining focused on the health and safety of our employees and our company purpose of making food the world loves. Prior to the outbreak of the COVID-19 pandemic, we expected to meet or exceed each of our key fiscal 2020 financial targets. The virus outbreak had a profound impact on consumer demand across our major markets, including driving an unprecedented increase in demand for food at home and a corresponding decrease in demand for away-from-home food, resulting from efforts to reduce virus transmission. After the onset of the pandemic, elevated at-home food demand accelerated net sales growth in the fourth quarter in the North America Retail segment, where a significant share of net sales comes from categories that were most impacted by at-home eating, including meals, baking, and cereal. The impact of elevated at-home demand was less pronounced in theEurope &Australia segment, reflecting its lower proportion of net sales in those categories. The Pet segment experienced increased demand early in the fourth quarter from stock-up purchasing, which partially unwound by the end of the quarter. Lower away-from-home food demand reduced growth for the Convenience Stores & Foodservice andAsia &Latin America segments. Consequently, our full-year results significantly exceeded our initial annual targets for organic net sales growth, constant-currency growth in adjusted operating profit and adjusted diluted earnings per share (EPS), and free cash flow conversion.
We delivered on the three key priorities we outlined at the beginning of fiscal 2020:
First, we accelerated our organic net sales growth rate compared to our fiscal 2019 performance, driven by strong execution to meet elevated demand during the COVID-19 pandemic, healthy levels of innovation, and a significant increase in capabilities and brand-building investment. We experienced robust growth in organic net sales in North America Retail, aided by our ability to meet the pandemic-related increase in demand for meals and baking categories during the fourth quarter, as well as consistently strong results inU.S. cereal and important improvements inU.S. snack bars andU.S. yogurt throughout the year. We exceeded our organic net sales growth goal for our Pet segment, driven by a successful expansion of BLUE into additional customer outlets and a significant increase in household penetration for the brand. Organic net sales results in our Convenience Stores & Foodservice,Europe &Australia , andAsia &Latin America segments were below fiscal 2019 levels, due to a slow start to the year in each of those segments, as well as the pandemic-related headwinds impacting Convenience Stores & Foodservice andAsia &Latin America in the second half of the year. Second, we maintained our strong adjusted operating profit margins. The combination of our continued strong levels of Holistic Margin Management (HMM) savings, volume growth, and positive net price realization and mix offset input cost inflation and increased investments in brand building and capabilities, resulting in significant growth in constant-currency adjusted operating profit and adjusted diluted EPS.
Third, we reduced our leverage. Our continued cash discipline delivered a significant reduction in core working capital and strong free cash flow conversion, resulting in reduced debt and an important decrease in our leverage ratio.
Our consolidated net sales for fiscal 2020 rose 5 percent to$17.6 billion . On an organic basis, net sales increased 4 percent compared to year-ago levels. Operating profit of$3.0 billion increased 17 percent. Adjusted operating profit of$3.0 billion increased 7 percent on a constant-currency basis. Diluted EPS of$3.56 was up 23 percent compared to fiscal 2019 results. Adjusted diluted EPS of$3.61 increased 12 percent on a constant-currency basis (See the "Non-GAAP Measures" section below for a description of our use of measures not defined by generally accepted accounting principles (GAAP)). Net cash provided by operations totaled$3.7 billion in fiscal 2020 representing a conversion rate of 166 percent of net earnings, including earnings attributable to redeemable and noncontrolling interests. This cash generation supported capital investments totaling$461 million , and our resulting free cash flow was$3.2 billion at a conversion rate of 143 percent of adjusted net earnings, including earnings attributable to redeemable and noncontrolling interests. We also returned cash to shareholders through dividends totaling$1.2 billion and reduced total debt outstanding by$1.0 billion . Our ratio of net debt-to-operating cash flow was 3.2 in fiscal 2020, and our 18 -------------------------------------------------------------------------------- net debt-to-adjusted earnings before net interest, income taxes, depreciation and amortization (net debt-to-adjusted EBITDA) ratio was 3.2, which was favorable to our fiscal 2020 target of 3.5 (See the "Non-GAAP Measures" section below for a description of our use of measures not defined by GAAP). A detailed review of our fiscal 2020 performance compared to fiscal 2019 appears below in the section titled "Fiscal 2020 Consolidated Results of Operations." A detailed review of our fiscal 2019 performance compared to our fiscal 2018 performance is set forth in Part II, Item 7 of our Form 10-K for the fiscal year endedMay 26, 2019 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Fiscal 2019 Results of Consolidated Operations," which is incorporated herein by reference. We have outlined three key priorities for fiscal 2021 that we expect will allow us to generate competitive performance while continuing to advance our long-term goals: 1)Compete effectively, everywhere we play, leading to increased brand penetration, competitive service levels, strengthened customer partnerships, and market share gains in our key categories. We expect net sales growth in fiscal 2021 will be positively impacted by superior execution as well as elevated at-home food demand, relative to the pre-pandemic period. We anticipate headwinds to fiscal 2021 net sales growth from comparisons against the 53rd week, the extra month of Pet segment results, and the pandemic-related increase in demand in the fourth quarter of fiscal 2020. Additionally, fiscal 2021 net sales growth may be negatively impacted by a potential reduction in consumers' at-home food inventory, which has been elevated during the pandemic. 2)Drive efficiency to fuel investment. We anticipate that the combination of benefits from our HMM initiatives and volume leverage and headwinds from input cost inflation, increased investment in our brands and capabilities, higher costs to service elevated demand, and higher ongoing health and safety-related expenses will result in an adjusted operating profit margin that is approximately in line with fiscal 2020 levels.
3)Reduce leverage to increase financial flexibility. We expect to make further progress in fiscal 2021 in reducing our net debt-to-adjusted EBITDA ratio.
We expect the largest factor impacting our fiscal 2021 performance will be relative balance of at-home versus away-from-home consumer food demand. This balance will be determined by factors such as consumers' ability and willingness to eat in restaurants, the proportion of people working from home, the reopening of schools, and changes in consumers' income levels. While the COVID-19 pandemic has significantly influenced each of these factors in recent months, the magnitude and duration of its future impact remains highly uncertain. We expect consumer concerns about COVID-19 virus transmission and the recession to drive elevated demand for food at home, relative to pre-pandemic levels. We are tracking the level of virus control, the possibility of a second-wave outbreak, the availability of a vaccine, GDP growth, unemployment rates, consumer confidence, and wage growth, among other factors, to assess the likely magnitude and duration of elevated at-home food demand.
Certain terms used throughout this report are defined in a glossary in Item 8 of this report.
FISCAL 2020 CONSOLIDATED RESULTS OF OPERATIONS
Fiscal 2020 had 53 weeks compared to 52 weeks in fiscal 2019. Fiscal 2020 includes 13 months of Pet operating segment results as we changed the Pet operating segment's reporting period from an April fiscal year end to a May fiscal year end to match our fiscal calendar. Fiscal 2019 included 12 months of Pet operating segment results.
In fiscal 2020, net sales increased 5 percent compared to last year and organic net sales increased 4 percent compared to last year. Operating profit margin of 16.8 percent was up 190 basis points from year-ago levels primarily driven by favorable net price realization and mix in fiscal 2020, impairment charges recorded for certain intangible and manufacturing assets in fiscal 2019, and the impact of the 53rd week in fiscal 2020, partially offset by higher selling, general, and administrative (SG&A) expenses in fiscal 2020. Adjusted operating profit margin increased 40 basis points to 17.3 percent, primarily driven by favorable net price realization and mix in fiscal 2020, the impact of the 53rd week in fiscal 2020, and the purchase accounting inventory adjustment in fiscal 2019 related to our acquisition ofBlue Buffalo Products, Inc. (Blue Buffalo), partially offset by higher SG&A expenses in fiscal 2020. Diluted earnings per share of$3.56 increased 23 percent compared to fiscal 2019. Adjusted diluted earnings per share of$3.61 increased 12 percent on a constant-currency basis (see the "Non-GAAP Measures" section below for a description of our use of measures not defined by GAAP). 19 --------------------------------------------------------------------------------
A summary of our consolidated financial results for fiscal 2020 follows:
In millions, Fiscal 2020
except per vs. Fiscal Percent of Net Constant-CurrencyFiscal 2020 share 2019 Sales Growth (a) Net sales$ 17,626.6 5 % Operating profit 2,953.9 17 % 16.8 % Net earnings attributable to General Mills 2,181.2 24 %
Diluted earnings per share $ 3.56 23 % Organic net sales growth rate (a)
4 %
Adjusted operating profit (a) 3,058.0 7 % 17.3 % 7 %
Adjusted diluted earnings per
share (a) $ 3.61 12 % 12 %
(a) See the "Non-GAAP Measures" section below for our use of measures not defined by GAAP.
Consolidated net sales were as follows:
Fiscal 2020
vs. Fiscal
Fiscal 2020 2019 Fiscal 2019
Net sales (in millions) $ 17,626.6 5 % $ 16,865.2
Contributions from volume growth (a) 4 pts
Net price realization and mix 2 pts
Foreign currency exchange (1) pt
Note: Table may not foot due to rounding
(a) Measured in tons based on the stated weight of our product shipments.
The 5 percent increase in net sales in fiscal 2020 reflects higher contributions
from volume growth and favorable net price realization and mix, partially offset
by unfavorable foreign currency exchange. The 53rd week in fiscal 2020
contributed 2 percentage points of net sales growth, reflecting 2 percentage
points of growth from volume. The fiscal 2020 increase in net sales growth
includes approximately 3 points of net sales growth due to the impact of the
COVID-19 pandemic.
Components of organic net sales growth are shown in the following table:
Fiscal 2020 vs. Fiscal 2019 Contributions from organic volume growth (a) 2 pts Organic net price realization and mix 2 pts Organic net sales growth 4 pts Foreign currency exchange (1) pt Divestitures Flat 53rd week 2 pts Net sales growth 5 pts Note: Table may not foot due to rounding (a) Measured in tons based on the stated weight of our product shipments. Organic net sales in fiscal 2020 increased 4 percent compared to fiscal 2019, driven by increased contributions from organic volume growth and favorable organic net price realization and mix. The increase in organic net sales growth includes approximately 3 points of organic net sales growth due to the impact of the COVID-19 pandemic. The disclosed impacts attributable to the COVID-19 pandemic on net sales and organic net sales were calculated based upon net sales in excess of our expectations prior to the net increase in demand resulting from the COVID-19 pandemic. The impacts disclosed are approximate and reflect our best estimate of the impact of the COVID-19 pandemic. Cost of sales increased$388 million in fiscal 2020 to$11,497 million . The increase was primarily driven by a$397 million increase due to higher volume. In fiscal 2020, we recorded a$19 million charge related to a product recall in our international Green Giant business, an$18 million increase in certain compensation and benefits expenses, and a$1 million increase attributable to product rate and mix. In fiscal 2019, we recorded a$53 million charge related to the fair value adjustment of inventory acquired in the Blue Buffalo acquisition. We recorded a$25 million net increase in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories in fiscal 2020 compared to a net increase of$36 million in fiscal 2019 (please see Note 8 to the Consolidated Financial Statements in Item 8 of this report for additional information). In fiscal 2020, we recorded$26 million of 20 -------------------------------------------------------------------------------- restructuring charges in cost of sales compared to$10 million in fiscal 2019. We also recorded$2 million of restructuring initiative project-related costs in cost of sales in fiscal 2020 compared to$1 million in fiscal 2019 (please see Note 4 to the Consolidated Financial Statements in Item 8 of this report for additional information). Gross margin increased 6 percent in fiscal 2020 versus fiscal 2019. Gross margin as a percent of net sales increased 70 basis points to 34.8 percent compared to fiscal 2019. SG&A expenses increased$216 million to$3,152 million in fiscal 2020 compared to fiscal 2019. The increase in SG&A expenses primarily reflects increased compensation and benefits expenses and media and advertising expenses, partially offset by lower other consumer-related expenses. SG&A expenses as a percent of net sales in fiscal 2020 increased 50 basis points compared to fiscal 2019. Divestitures loss totaled$30 million in fiscal 2019 from the sale of our La Salteña fresh pasta and refrigerated dough business inArgentina and the sale of our yogurt business inChina . Restructuring, impairment, and other exit costs totaled$24 million in fiscal 2020 compared to$275 million in fiscal 2019. We did not undertake any new restructuring actions in fiscal 2020. In fiscal 2019, we recorded$193 million of impairment charges related to certain brand intangible assets and a$15 million charge related to the impairment of certain manufacturing assets in our North America Retail andAsia &Latin America segments. In fiscal 2019, we also recorded$80 million of restructuring charges related to actions to drive efficiencies in targeted areas of our global supply chain. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report for additional information. Benefit plan non-service income totaled$113 million in fiscal 2020 compared to$88 million in fiscal 2019, primarily reflecting lower interest costs (please see Note 2 to the Consolidated Financial Statements in Item 8 of this report for additional information).
Interest, net for fiscal 2020 totaled
Our effective tax rate for fiscal 2020 was 18.5 percent compared to 17.7 percent in fiscal 2019. The 0.8 percentage point increase was primarily due to certain nonrecurring discrete tax benefits in fiscal 2019, partially offset by the benefit from the reorganization of certain wholly-owned subsidiaries and favorable changes in earnings mix by jurisdiction in fiscal 2020. Our adjusted effective tax rate was 20.7 percent in fiscal 2020 compared to 21.8 percent in fiscal 2019 (see the "Non-GAAP Measures" section below for a description of our use of measures not defined by GAAP). After-tax earnings from joint ventures increased 27 percent to$91 million in fiscal 2020 compared to fiscal 2019, primarily driven by higher net sales at CPW partially reflecting the impact of the COVID-19 pandemic in the month of March and our share of lower after-tax restructuring charges compared to fiscal 2019. On a constant-currency basis, after-tax earnings from joint ventures increased 31 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: Fiscal 2020 vs. Fiscal 2019 CPW HDJ Total Contributions from volume growth (a) 2 pts (11) pts Net price realization and mix 3 pts 7 pts Net sales growth in constant currency 4 pts (4) pts 3
pts
Foreign currency exchange (4) pts 3 pts (3)
pts
Net sales growth Flat (1) pt Flat Note: Table may not foot due to rounding (a) Measured in tons based on the stated weight of our product shipments
Average diluted shares outstanding increased by 8 million in fiscal 2020 from fiscal 2019 due to option exercises.
21
--------------------------------------------------------------------------------RESULTS OF SEGMENT OPERATIONS Our businesses are organized into five operating segments: North America Retail; Convenience Stores & Foodservice;Europe &Australia ;Asia &Latin America ; and Pet. Fiscal 2020 includes 13 months of Pet operating segment results as we changed the Pet operating segment's reporting period from an April fiscal year end to a May fiscal year end to match our fiscal calendar. Fiscal 2019 included 12 months of results.
The following tables provide the dollar amount and percentage of net sales and operating profit from each segment for fiscal 2020 and fiscal 2019:
Fiscal Year
2020 2019
In Millions Dollars Percent of Total Dollars Percent of Total
Net Sales
North America Retail $ 10,750.5 61 % $ 9,925.2 59 %
Europe & Australia 1,838.9 10 1,886.7 11
Convenience Stores & Foodservice 1,816.4 10 1,969.1 12
Pet 1,694.6 10 1,430.9 8
Asia & Latin America 1,526.2 9 1,653.3 10
Total $ 17,626.6 100 % $ 16,865.2 100 %
Segment Operating Profit
North America Retail $ 2,627.0 75 % $ 2,277.2 72 %
Europe & Australia 113.8 3 123.3 4
Convenience Stores & Foodservice 337.2 10 419.5 13
Pet 390.7 11 268.4 9
Asia & Latin America 18.7 1 72.4 2
Total $ 3,487.4 100 % $ 3,160.8 100 %
Segment operating profit as reviewed by our executive management excludes unallocated corporate items, net gain/loss on divestitures, and restructuring, impairment, and other exit costs that are centrally managed.
NORTH AMERICA RETAIL SEGMENT Our North America Retail operating segment reflects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains, and e-commerce grocery providers. Our product categories in this business segment are ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, snack bars, fruit snacks, savory snacks, and a wide variety of organic products including ready-to-eat cereal, frozen and shelf-stable vegetables, meal kits, fruit snacks, snack bars, and refrigerated yogurt.
North America Retail net sales were as follows:
Fiscal 2020 vs. 2019
Fiscal 2020 Percentage Change Fiscal 2019
Net sales (in millions) $ 10,750.5 8 % $ 9,925.2
Contributions from volume growth (a) 10 pts
Net price realization and mix (1) pt
Foreign currency exchange Flat
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
The 8 percent increase in North America Retail net sales for fiscal 2020 was
primarily driven by the impact of the COVID-19 pandemic. The increase in net
sales includes an increase in contributions from volume growth, including 2
percentage points resulting from the 53rd week, partially offset by unfavorable
net price realization and mix.
22
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The components of North America Retail organic net sales growth are shown in the
following table:
Fiscal 2020 vs. 2019
Percentage Change
Contributions from organic volume growth (a) 8 pts
Organic net price realization and mix (1) pt
Organic net sales growth 6 pts
Foreign currency exchange Flat
53rd week 2 pts
Net sales growth 8 pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
North America Retail organic net sales increased 6 percent in fiscal 2020 compared to fiscal 2019, primarily driven by the impact of the COVID-19 pandemic. The increase in organic net sales includes an increase in contributions from organic volume growth, partially offset by unfavorable organic net price realization and mix.
Net sales for our North America Retail operating units are shown in the
following table:
Fiscal 2020 vs. 2019
In Millions Fiscal 2020 Percentage Change Fiscal 2019
U.S. Meals & Baking $ 4,408.5 15 % $ 3,839.8
U.S. Cereal 2,434.1 8 % 2,255.4
U.S. Snacks 2,091.9 2 % 2,060.9
U.S. Yogurt and other 919.0 1 % 906.7
Canada (a) 897.0 4 % 862.4
Total $ 10,750.5 8 % $ 9,925.2
(a) On a constant currency basis, Canada operating unit net sales increased 5
percent in fiscal 2020. See the "Non-GAAP Measures" section below for our use of
this measure not defined by GAAP.
Segment operating profit increased 15 percent to $2,627 million in fiscal 2020,
compared to $2,277 million in fiscal 2019, primarily driven by higher
contributions from volume growth and the impact of the 53rd week in fiscal 2020.
Segment operating profit increased 15 percent on a constant-currency basis in
fiscal 2020 compared to fiscal 2019 (see the "Non-GAAP Measures" section below
for our use of this measure not defined by GAAP).
EUROPE & AUSTRALIA SEGMENT
Our Europe & Australia operating segment reflects retail and foodservice
businesses in the greater Europe and Australia regions. Our product categories
include refrigerated yogurt, meal kits, snack bars, super-premium ice cream,
refrigerated and frozen dough products, shelf stable vegetables, and dessert and
baking mixes. Revenues from franchise fees are reported in the region or country
where the franchisee is located.
Fiscal 2020 vs. 2019
Fiscal 2020 Percentage Change Fiscal 2019
Net sales (in millions) $ 1,838.9 (3) % $ 1,886.7
Contributions from volume growth (a) Flat
Net price realization and mix 1 pt
Foreign currency exchange (3) pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
The 3 percent decrease inEurope &Australia net sales in fiscal 2020 was driven by unfavorable foreign currency exchange, partially offset by favorable net price realization and mix. Fiscal 2020 net sales includes growth from the impact of the COVID-19 pandemic. 23
-------------------------------------------------------------------------------- The components ofEurope &Australia organic net sales growth are shown in the following table: Fiscal 2020 vs. 2019 Percentage Change Contributions from organic volume growth (a) (2) pts Organic net price realization and mix 1 pt Organic net sales growth (1) pt Foreign currency exchange (3) pts 53rd week 2 pts Net sales growth (3) pts
Note: Table may not foot due to rounding
(a) Measured in tons based on the stated weight of our product shipments.
The 1 percent decrease inEurope &Australia organic net sales growth in fiscal 2020 was driven by a decrease in contributions from organic volume growth, partially offset by favorable organic net price realization and mix. Fiscal 2020 organic net sales includes growth from the impact of the COVID-19 pandemic.
Segment operating profit decreased 8 percent to
CONVENIENCE STORES & FOODSERVICE SEGMENT
Our major product categories in our Convenience Stores & Foodservice operating segment are ready-to-eat cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products, baking mixes, and bakery flour. Many products we sell are branded to the consumer and nearly all are branded to our customers. We sell to distributors and operators in many customer channels including foodservice, convenience stores, vending, and supermarket bakeries inthe United States .
Convenience Stores & Foodservice net sales were as follows:
Fiscal 2020 vs. 2019
Fiscal 2020 Percentage Change Fiscal 2019
Net sales (in millions) $ 1,816.4 (8) % $ 1,969.1
Contributions from volume growth (a) (6) pts
Net price realization and mix (2) pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
Convenience Stores & Foodservice net sales decreased 8 percent in fiscal 2020 primarily driven by the impact of the COVID-19 pandemic on away-from-home channels. The decrease in net sales includes a decrease in contributions from volume growth and unfavorable net price realization and mix.
The components of Convenience Stores & Foodservice organic net sales growth are shown in the following table:
Fiscal 2020 vs. 2019
Percentage Change
Contributions from organic volume growth (a) (7) pts
Organic net price realization and mix (2) pts
Organic net sales growth (9) pts
53rd week 1 pt
Net sales growth (8) pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
The 9 percent decrease in Convenience Stores & Foodservice organic net sales growth in fiscal 2020 was primarily driven by the impact of the COVID-19 pandemic. The decrease in organic net sales growth includes a decrease in contributions from organic volume growth and unfavorable organic net price realization and mix.
24
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Segment operating profit decreased 20 percent to $337 million in fiscal 2020,
compared to $420 million in fiscal 2019, primarily driven by lower contributions
from volume growth and unfavorable net price realization and mix.
PET SEGMENT
Our Pet operating segment includes pet food products sold primarily in the
United States in national pet superstore chains, e-commerce retailers, grocery
stores, regional pet store chains, mass merchandisers, and veterinary clinics
and hospitals. Our product categories include dog and cat food (dry foods, wet
foods, and treats) made with whole meats, fruits, and vegetables and other
high-quality natural ingredients. Our tailored pet product offerings address
specific dietary, lifestyle, and life-stage needs and span different product
types, diet types, breed sizes for dogs, lifestages, flavors, product functions
and textures, and cuts for wet foods.
Fiscal 2020 includes 13 months of Pet operating segment results as we changed
the Pet operating segment's reporting period from an April fiscal year end to a
May fiscal year end to match our fiscal calendar. Fiscal 2019 included 12 months
of results.
Pet net sales were as follows:
Fiscal 2020 vs. 2019
Fiscal 2020 Percentage Change Fiscal 2019
Net sales (in millions) $ 1,694.6 18 % $ 1,430.9
Contributions from volume growth (a) 17 pts
Net price realization and mix 2 pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
Pet net sales increased 18 percent in fiscal 2020 compared to fiscal 2019,
driven by an increase in contributions from volume growth, including the impact
of an extra month in the period, and favorable net price realization and mix.
Fiscal 2020 net sales includes growth from the impact of the COVID-19 pandemic.
The components of Pet organic net sales growth are shown in the following table:
Fiscal 2020 vs. 2019
Percentage Change
Contributions from organic volume growth (a) 17 pts
Organic net price realization and mix 2 pts
Organic net sales growth 18 pts
Net sales growth 18 pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
The 18 percent increase in Pet organic net sales growth in fiscal 2020 was driven by an increase in contributions from organic volume growth, including the impact of an extra month in the period, and favorable organic net price realization and mix. Fiscal 2020 organic net sales includes growth from the impact of the COVID-19 pandemic.
Pet operating profit increased 46 percent to$391 million in fiscal 2020, compared to$268 million in fiscal 2019, primarily driven by a$53 million purchase accounting adjustment related to inventory acquired in fiscal 2019, an increase in contributions from volume growth, favorable net price realization and mix, and the impact of an extra month in the period, partially offset by higher SG&A expenses.
OurAsia &Latin America operating segment consists of retail and foodservice businesses in the greaterAsia andSouth America regions. Our product categories include super-premium ice cream and frozen desserts, meal kits, dessert and baking mixes, snack bars, salty snacks, refrigerated and frozen dough products, and wellness beverages. We also sell super-premium ice cream and frozen desserts directly to consumers through owned retail shops. OurAsia &Latin America segment also includes products manufactured inthe United States for export, mainly toCaribbean 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. 25
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Fiscal 2020 vs. 2019
Fiscal 2020 Percentage Change Fiscal 2019
Net sales (in millions) $ 1,526.2 (8) % $ 1,653.3
Contributions from volume growth (a) (2) pts
Net price realization and mix (1) pt
Foreign currency exchange (4) pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
Asia &Latin America net sales decreased 8 percent in fiscal 2020 compared to fiscal 2019, primarily driven by the impact of the COVID-19 pandemic. The decrease in net sales includes unfavorable foreign currency exchange, a decrease in contributions from volume growth, and unfavorable net price realization and mix. The components ofAsia &Latin America organic net sales growth are shown in the following table: Fiscal 2020 vs. 2019 Percentage Change Contributions from organic volume growth (a) (1) pt Organic net price realization and mix (1) pt Organic net sales growth (2) pts Foreign currency exchange (4) pts Divestitures (b) (3) pts 53rd week 2 pts Net sales growth (8) pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
(b) Impact of the divestiture of our La Salteña business in
The 2 percent decrease inAsia &Latin America organic net sales in fiscal 2020 was primarily driven by the impact of the COVID-19 pandemic. The decrease in organic net sales growth includes unfavorable organic net price realization and mix and a decrease in contributions from organic volume growth. Segment operating profit decreased 74 percent to$19 million in fiscal 2020, compared to$72 million in fiscal 2019, primarily driven by an increase in input costs and lower contributions from volume growth. Segment operating profit decreased 73 percent on a constant-currency basis in fiscal 2020 compared to fiscal 2019 (see the "Non-GAAP Measures" section below for our use of this measure not defined by GAAP).
UNALLOCATED CORPORATE ITEMS
Unallocated corporate items include corporate overhead expenses, variances to planned domestic employee benefits and incentives, contributions to theGeneral 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. This includes gains and losses from the mark-to-market valuation of certain commodity positions until passed back to our operating segments in accordance with our policy as discussed in Note 8 to the Consolidated Financial Statements in Item 8 of this report. In fiscal 2020, unallocated corporate expense increased$169 million to$509 million compared to$340 million last year, primarily driven by compensation and benefits expenses. In fiscal 2020, we recorded a$25 million net increase in expense related to mark-to-market valuation of certain commodity positions and grain inventories compared to a$36 million net increase in expense in the prior year. In addition, we recorded$26 million of restructuring charges, and$2 million of restructuring initiative project-related costs in cost of sales in fiscal 2020, compared to$10 million of restructuring charges and$1 million of restructuring initiative project-related costs in cost of sales in fiscal 2019. We also recorded a$19 million charge related to a product recall in our international Green Giant business in fiscal 2020. In fiscal 2020, we recorded$8 million of net losses related to certain investment valuation adjustments and the loss on sale of certain corporate investments, compared to$23 million of gains in fiscal 2019. In fiscal 2019, we recorded a$16 million gain from a legal recovery related to our Yoplait SAS subsidiary and$26 million of integration costs related to our acquisition of Blue Buffalo. In addition, we recorded a$3 million loss related to the impact of hyperinflationary accounting for ourArgentina subsidiary in fiscal 2019. 26 --------------------------------------------------------------------------------
IMPACT OF INFLATION We experienced input cost inflation of 4 percent in fiscal 2020 and 4 percent in fiscal 2019, primarily on commodity inputs. We expect input cost inflation of approximately 3 percent in fiscal 2021. We attempt to minimize the effects of inflation through HMM, planning, and operating practices. Our risk management practices are discussed in Item 7A of this report. LIQUIDITY The primary source of our liquidity is cash flow from operations. Over the most recent two-year period, our operations have generated$6.5 billion in cash. A substantial portion of this operating cash flow has been returned to shareholders through dividends. We also use cash from operations to fund our capital expenditures and acquisitions. We typically use a combination of cash, notes payable, and long-term debt, and occasionally issue shares of common stock, to finance significant acquisitions. Our sources of liquidity were not materially impacted from the COVID-19 pandemic. As ofMay 31, 2020 , we had$566 million of cash and cash equivalents held in foreign jurisdictions. As a result of the Tax Cuts and Jobs Act (TCJA), the historic undistributed earnings of our foreign subsidiaries were taxed in theU.S. via the one-time repatriation tax in fiscal 2018. We have re-evaluated our assertion and have concluded that although earnings prior to fiscal 2018 will remain permanently reinvested, we will no longer make a permanent reinvestment assertion beginning with our fiscal 2018 earnings. As part of the accounting for the TCJA, we recorded local country withholding taxes related to certain entities from which we began repatriating undistributed earnings and will continue to record local country withholding taxes on all future earnings. As a result of the transition tax, we may repatriate our cash and cash equivalents held by our foreign subsidiaries without such funds being subject to furtherU.S. income tax liability. Cash Flows from Operations Fiscal Year In Millions 2020 2019
Net earnings, including earnings attributable to redeemable and noncontrolling interests
$ 2,210.8 $ 1,786.2 Depreciation and amortization 594.7
620.1
After-tax earnings from joint ventures (91.1)
(72.0)
Distributions of earnings from joint ventures 76.5 86.7 Stock-based compensation 94.9 84.9 Deferred income taxes (29.6) 93.5
Pension and other postretirement benefit plan contributions (31.1)
(28.8)
Pension and other postretirement benefit plan costs (32.3)
6.1
Divestitures loss -
30.0
Restructuring, impairment, and other exit costs 43.6
235.7
Changes in current assets and liabilities, excluding the 793.9
(7.5)
effects of acquisitions and divestitures Other, net 45.9
(27.9)
Net cash provided by operating activities$ 3,676.2 $ 2,807.0 During fiscal 2020, cash provided by operations was$3,676 million compared to$2,807 million in the same period last year. The$869 million increase was primarily driven by an$801 million change in current assets and liabilities and a$425 million increase in net earnings, partially offset by a$192 million change in non-cash restructuring, impairment, and other exit costs and a$123 million change in deferred income taxes. The$801 million change in current assets and liabilities was primarily driven by a$233 million change in other current liabilities, primarily driven by changes in income taxes payable, trade and advertising accruals, and incentive accruals, a$230 million change in accounts payable as a result of increased spending on raw materials and packaging as well as the continued extension of payment terms, and a$208 million change in prepaid and other current assets, primarily driven by the timing of certain tax payments and receipts. We strive to grow core working capital at or below the rate of growth in our net sales. For fiscal 2020, core working capital decreased$591 million , compared to a net sales increase of 5 percent, primarily driven by the increase in accounts payable and lower inventory balances. In fiscal 2019, core working capital decreased$195 million , compared to a net sales increase of 7 percent. 27 --------------------------------------------------------------------------------
Cash Flows from Investing Activities
Fiscal Year
In Millions 2020 2019
Purchases of land, buildings, and equipment $ (460.8) $ (537.6)
Investments in affiliates, net (48.0)
0.1
Proceeds from disposal of land, buildings, and equipment 1.7 14.3 Proceeds from divestitures - 26.4 Other, net 20.9 (59.7) Net cash used by investing activities$ (486.2) $ (556.5)
In fiscal 2020, we used
We expect capital expenditures to be approximately 3.5 percent of reported net sales in fiscal 2021. These expenditures will fund initiatives that are expected to fuel growth, support innovative products, and continue HMM initiatives throughout the supply chain.
Cash Flows from Financing Activities
Fiscal Year
In Millions 2020 2019
Change in notes payable $ (1,158.6) $ (66.3)
Issuance of long-term debt 1,638.1 339.1
Payment of long-term debt (1,396.7) (1,493.8)
Proceeds from common stock issued on exercised options 263.4 241.4
Purchases of common stock for treasury (3.4)
(1.1)
Dividends paid (1,195.8)
(1,181.7)
Investments in redeemable interest -
55.7
Distributions to redeemable and noncontrolling interest holders (72.5)
(38.5)
Other, net (16.0)
(31.2)
Net cash used by financing activities$ (1,941.5) $ (2,176.4) Financing activities used$1.9 billion of cash in fiscal 2020 compared to$2.2 billion in fiscal 2019. We had$917 million of net debt repayments in fiscal 2020 compared to$1.2 billion of net debt repayments in fiscal 2019. For more information on our debt issuances and payments, please refer to Note 9 to the Consolidated Financial Statements in Item 8 of this report.
During fiscal 2020, we received
Share repurchases in fiscal 2020 and 2019 were insignificant.
Dividends paid in fiscal 2020 totaled
Selected Cash Flows from Joint Ventures
Selected cash flows from our joint ventures are set forth in the following table:
Fiscal Year
Inflow (Outflow), in Millions 2020 2019
Investments in affiliates, net $ (48.0) $ (0.1)
Dividends received 76.5 86.7
28
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CAPITAL RESOURCES
Total capital consisted of the following:
In Millions May 31, 2020 May 26, 2019 Notes payable$ 279.0 $ 1,468.7 Current portion of long-term debt 2,331.5 1,396.5 Long-term debt 10,929.0 11,624.8 Total debt 13,539.5 14,490.0 Redeemable interest 544.6 551.7 Noncontrolling interests 291.0 313.2 Stockholders' equity 8,058.5 7,054.5 Total capital$ 22,433.6 $ 22,409.4
The following table details the fee-paid committed and uncommitted credit lines
we had available as of
In Billions Facility Amount Borrowed Amount Credit facility expiring: May 2022 $ 2.7 $ - September 2022 0.2 - Total committed credit facilities 2.9 - Uncommitted credit facilities 0.6
0.2
Total committed and uncommitted credit facilities $ 3.5 $ 0.2 To ensure availability of funds, we maintain bank credit lines and have commercial paper programs available to us inthe United States andEurope . In response to uncertainty surrounding the availability and cost of commercial paper borrowings as a result of the COVID-19 pandemic, we issued$750 million of fixed-rate notes inApril 2020 and reduced our borrowings under commercial paper programs. As the COVID-19 pandemic evolves, we will continue to evaluate its impact to our sources of liquidity. We also have uncommitted and asset-backed credit lines that support our foreign operations.
Certain of our long-term debt agreements, our credit facilities, and our
noncontrolling interests contain restrictive covenants. As of
We have$2,332 million of long-term debt maturing in the next 12 months that is classified as current, including$100 million of 6.61 percent medium-term notes due for remarketing inOctober 2020 , €500 million of 2.1 percent notes dueNovember 2020 , €200 million of 0.0 percent notes dueNovember 2020 ,$4 million of floating-rate medium term notes due for remarketing inNovember 2020 ,$850 million of floating-rate notes dueApril 2021 , and$600 million of 3.2 percent notes dueApril 2021 . 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. As ofMay 31, 2020 , our total debt, including the impact of derivative instruments designated as hedges, was 87 percent in fixed-rate and 13 percent in floating-rate instruments, compared to 74 percent in fixed-rate and 26 percent in floating-rate instruments onMay 26, 2019 . Our net debt to operating cash flow ratio declined to 3.2 in fiscal 2020 from 5.0 in fiscal 2019, primarily driven by an increase in cash provided by operations. Our net debt-to-adjusted EBITDA ratio declined to 3.2 in fiscal 2020 from 3.9 in fiscal 2019, consistent with our plans to reduce our leverage following our acquisition of Blue Buffalo (see the "Non-GAAP Measures" section below for our use of this measure not defined by GAAP). 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 these entities. We consolidate these entities into our consolidated financial statements. We record Sodiaal's 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl as noncontrolling interests, and 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 inU.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 beforeDecember 2024 . As ofMay 31, 2020 , the redemption value of the redeemable interest was$545 million which approximates its fair value.
During fiscal 2019, Sodiaal invested
29
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The third-party holder of the General Mills Cereals, LLC (GMC) Class A Interests
receives quarterly preferred distributions from available net income based on
the application of a floating preferred return rate to the holder's capital
account balance established in the most recent mark-to-market valuation
(currently $252 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.
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.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
As of
As ofMay 31, 2020 , we invested in three variable interest entities (VIEs). None of our VIEs are material to our results of operations, financial condition, or liquidity as of and for the fiscal year endedMay 31, 2020 . Our defined benefit plans inthe United States are subject to the requirements of the Pension Protection Act (PPA). In the future, the PPA may require us to make additional contributions to our domestic plans. We do not expect to be required to make any contributions in fiscal 2021.
The following table summarizes our future estimated cash payments under existing contractual obligations, including payments due by period:
Payments Due by Fiscal Year
2026 and
In Millions Total 2021 2022 - 2023 2024 - 2025 Thereafter
Long-term debt (a) $ 13,318.5 $ 2,331.3 $ 2,277.1 $ 2,550.0 $ 6,160.1
Accrued interest 92.8 92.8 - - -
Operating leases (b) 412.5 115.4 171.5 91.9 33.7
Finance leases (b) 0.2 0.1 0.1 - -
Purchase obligations
(c) 2,548.8 2,271.7 191.7 57.3 28.1
Total contractual
obligations 16,372.8 4,811.3 2,640.4 2,699.2 6,221.9
Other long-term
obligations (d) 1,167.1 - - - -
Total long-term
obligations $ 17,539.9 $ 4,811.3 $ 2,640.4 $
2,699.2
(a)Amounts represent the expected cash payments of our long-term debt and do not include$0.2 million for finance leases or$58.4 million for net unamortized debt issuance costs, premiums and discounts, and fair value adjustments.
(b)See Note 7 to the Consolidated Financial Statements in Item 8 of this report for more information on our lease arrangements.
(c)The majority of the purchase obligations represent commitments for raw material and packaging to be utilized in the normal course of business and for consumer marketing spending commitments that support our brands. For purposes of this table, arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty and with short notice (usually 30 days). Any amounts reflected on the Consolidated Balance Sheets as accounts payable and accrued liabilities are excluded from the table above. (d)The fair value of our foreign exchange, equity, commodity, and grain derivative contracts with a payable position to the counterparty was$43.1 million as ofMay 31, 2020 , based on fair market values as of that date. Future changes in market values will impact the amount of cash ultimately paid or received to settle those instruments in the future. Other long-term obligations mainly consist of liabilities for accrued compensation and benefits, including the underfunded status of certain of our defined benefit pension, other postretirement benefit, and postemployment benefit plans, and miscellaneous liabilities. We expect to pay approximately$24 million of benefits from our unfunded postemployment benefit plans and approximately$21 million of deferred compensation in fiscal 2021. We are unable to reliably estimate the amount of these payments beyond fiscal 2021. As ofMay 31, 2020 , our total liability for uncertain tax positions and accrued interest and penalties was$175.8 million . 30
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SIGNIFICANT ACCOUNTING ESTIMATES
For a complete description of our significant accounting policies, please see Note 2 to the Consolidated Financial Statements in Item 8 of this report. Our significant accounting estimates are those that have a meaningful impact on the reporting of our financial condition and results of operations. These estimates include our accounting for revenue recognition, 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.
Considerations related to the COVID-19 pandemic
The impact that the recent COVID-19 pandemic will have on our consolidated results of operations is uncertain. We saw increased orders from retail customers across all geographies in response to increased consumer demand for food at home. We also experienced a COVID-19-related decrease in consumer traffic in away-from-home food outlets during the third and fourth quarters of fiscal 2020. Near-term elevated retail customer orders may unwind in the coming months, and we are unable to predict the nature and timing of when that impact may occur, if at all. We have considered the potential impacts of the COVID-19 pandemic in our significant accounting estimates as ofMay 31, 2020 , and will continue to evaluate the nature and extent of the impact to our business and consolidated results of operations.
Revenue Recognition
Our revenues are reported net of variable consideration and consideration payable to our customers, including trade promotion, consumer coupon redemption and other reductions to the transaction price, including estimated allowances for returns, unsalable product, and prompt pay discounts. Trade promotions are recorded using significant judgment of estimated participation and performance levels for offered programs at the time of sale. Differences between the estimated and actual reduction to the transaction price is recognized as a change in estimate in a subsequent period. Our accrued trade and coupon promotion liabilities were$471 million as ofMay 31, 2020 , and$410 million as ofMay 26, 2019 . Because these amounts are significant, if our estimates are inaccurate we would have to make adjustments in subsequent periods that could have a significant effect on our results of operations.
Valuation of Long-Lived Assets
We estimate the useful lives of long-lived assets and make estimates concerning undiscounted cash flows to review for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Fair value is measured using discounted cash flows or independent appraisals, as appropriate.
Intangible Assets
Goodwill and other indefinite-lived intangible assets are not subject to amortization and are tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. Our estimates of fair value for goodwill impairment testing are determined based on a discounted cash flow model. We use inputs from our long-range planning process to determine growth rates for sales and profits. We also make estimates of discount rates, perpetuity growth assumptions, market comparables, and other factors. We evaluate the useful lives of our other intangible assets, mainly brands, to determine if they are finite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets. Intangible assets that are deemed to have finite lives are amortized on a straight-line basis over their useful lives, generally ranging from 4 to 30 years. Our estimate of the fair value of our brand assets is based on a discounted cash flow model using inputs which include projected revenues from our long-range plan, assumed royalty rates that could be payable if we did not own the brands, and a discount rate. As ofMay 31, 2020 , we had$20 billion of goodwill and indefinite-lived intangible assets. We assessed our goodwill and brand intangible assets for potential impairment indicators using quantitative and qualitative factors, including the estimated impacts of the COVID-19 pandemic, as ofMay 31, 2020 , and concluded that no impairment indicators were present as of that date. While we currently believe that the fair value of each intangible exceeds its carrying value and that those intangibles will contribute indefinitely to our cash flows, materially different assumptions regarding future performance of our businesses or a different weighted-average cost of capital could result in material impairment losses and amortization expense. We performed our fiscal 2020 assessment of our intangible assets as of the first day of the second quarter of fiscal 2020, and we determined there was no impairment of our intangible assets as their related fair values were substantially in excess of the carrying values, except for theEurope &Australia reporting unit and the Progresso brand intangible asset. 31
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The excess fair value as of the fiscal 2020 test date of the
Excess Fair Value
Carrying Value of as of Fiscal 2020
In Millions Intangible Asset Test Date
Europe & Australia $ 672.6 14%
Progresso $ 330.0 5%
In addition, while having significant coverage as of our fiscal 2020 assessment
date, the Pillsbury brand intangible asset had risk of decreasing coverage. We
will continue to monitor our businesses for potential impairment.
Redeemable Interest
The significant assumptions used to estimate the redemption value of the redeemable interest include projected revenue growth and profitability from our long-range plan, capital spending, depreciation and taxes, foreign currency exchange rates, and a discount rate. As ofMay 31, 2020 , the redemption value of the redeemable interest was$545 million .
Stock-based Compensation
The valuation of stock options is a significant accounting estimate that requires us to use judgments and assumptions that are likely to have a material impact on our financial statements. Annually, we make predictive assumptions regarding future stock price volatility, employee exercise behavior, dividend yield, and the forfeiture rate. For more information on these assumptions, please see Note 12 to the Consolidated Financial Statements in Item 8 of this report.
The estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:
Fiscal Year
2020 2019 2018
Estimated fair values of stock options granted
$ 6.18 Assumptions: Risk-free interest rate 2.0 % 2.9 % 2.2 % Expected term 8.5 years 8.5 years 8.2 years Expected volatility 17.4 % 16.3 % 15.8 % Dividend yield 3.6 % 4.3 % 3.6 % The risk-free interest rate for periods during the expected term of the options is based on theU.S. Treasury zero-coupon yield curve in effect at the time of grant. An increase in the expected term by 1 year, leaving all other assumptions constant, would increase the grant date fair value by 1 percent. If all other assumptions are held constant, a one percentage point increase in our fiscal 2020 volatility assumption would increase the grant date fair value of our fiscal 2020 option awards by 7 percent. To the extent that actual outcomes differ from our assumptions, we are not required to true up grant-date fair value-based expense to final intrinsic values. Historical data has a significant bearing on our forward-looking assumptions. Significant variances between actual and predicted experience could lead to prospective revisions in our assumptions, which could then significantly impact the year-over-year comparability of stock-based compensation expense. Any corporate income tax benefit realized upon exercise or vesting of an award in excess of that previously recognized in earnings (referred to as a windfall tax benefit) is presented in the Consolidated Statements of Cash Flows as an operating cash flow. The actual impact on future years' cash flows will depend, in part, on the volume of employee stock option exercises during a particular year and the relationship between the exercise-date market value of the underlying stock and the original grant-date fair value previously determined for financial reporting purposes. Realized windfall tax benefits and shortfall tax deficiencies related to the exercise or vesting of stock-based awards are recognized in the Consolidated Statement of Earnings. Because employee stock option exercise behavior is not within our control, it is possible that significantly different reported results could occur if different assumptions or conditions were to prevail.
Income Taxes
We apply a more-likely-than-not threshold to the recognition and derecognition
of uncertain tax positions. Accordingly, we recognize the amount of tax benefit
that has a greater than 50 percent likelihood of being ultimately realized upon
settlement. Future changes in
32
-------------------------------------------------------------------------------- judgment related to the expected ultimate resolution of uncertain tax positions will affect earnings in the quarter of such change. For more information on income taxes, please see Note 15 to the Consolidated Financial Statements in Item 8 of this report.
Defined Benefit Pension, Other Postretirement Benefit, and Postemployment Benefit Plans
We have defined benefit pension plans covering many employees inthe United States ,Canada ,Switzerland ,France , and theUnited Kingdom . We also sponsor plans that provide health care benefits to many of our retirees inthe United States ,Canada , andBrazil . Under certain circumstances, we also provide accruable benefits, primarily severance, to former and inactive employees inthe United States ,Canada , andMexico . Please see Note 14 to the Consolidated Financial Statements in Item 8 of this report for a description of our defined benefit pension, other postretirement benefit, and postemployment benefit plans. We recognize benefits provided during retirement or following employment over the plan participants' active working lives. Accordingly, we make various assumptions to predict and measure costs and obligations many years prior to the settlement of our obligations. Assumptions that require significant management judgment and have a material impact on the measurement of our net periodic benefit expense or income and accumulated benefit obligations include the long-term rates of return on plan assets, the interest rates used to discount the obligations for our benefit plans, and health care cost trend rates.
Expected Rate of Return on Plan Assets
Our expected rate of return on plan assets is determined by our asset allocation, our historical long-term investment performance, our estimate of future long-term returns by asset class (using input from our actuaries, investment services, and investment managers), and long-term inflation assumptions. We review this assumption annually for each plan; however, our annual investment performance for one particular year does not, by itself, significantly influence our evaluation.
Our historical investment returns (compound annual growth rates) for ourUnited States defined benefit pension and other postretirement benefit plan assets were 15.4 percent, 8.5 percent, 10.1 percent, 8.2 percent, and 7.9 percent for the 1, 5, 10, 15, and 20 year periods endedMay 31, 2020 . On a weighted-average basis, the expected rate of return for all defined benefit plans was 6.95 percent for fiscal 2020, 7.25 percent for fiscal 2019, and 7.88 percent for fiscal 2018. For fiscal 2021, we lowered our weighted-average expected rate of return on plan assets for our principal defined benefit pension and other postretirement plans inthe United States to 5.67 percent due to asset allocation changes and expected asset returns. Lowering the expected long-term rate of return on assets by 100 basis points would increase our net pension and postretirement expense by$79 million for fiscal 2021. A market-related valuation basis is used to reduce year-to-year expense volatility. The market-related valuation recognizes certain investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Our outside actuaries perform these calculations as part of our determination of annual expense or income. Discount Rates We estimate the service and interest cost components of the net periodic benefit expense for ourUnited States and most of our international defined benefit pension, other postretirement benefit, and postemployment benefit plans utilizing a full yield curve approach by applying the specific spot rates along the yield curve used to determine the benefit obligation to the relevant projected cash flows. Our discount rate assumptions are determined annually as ofMay 31 for our defined benefit pension, other postretirement benefit, and postemployment benefit plan obligations. We work with our outside actuaries to determine the timing and amount of expected future cash outflows to plan participants and, using the Aa Above Median corporate bond yield, to develop a forward interest rate curve, including a margin to that index based on our credit risk. This forward interest rate curve is applied to our expected future cash outflows to determine our discount rate assumptions. 33 --------------------------------------------------------------------------------
Our weighted-average discount rates were as follows:
Defined Benefit Other Postretirement Postemployment
Pension Plans Benefit Plans Benefit Plans
Effective rate for fiscal 2021
service costs 3.59 % 3.44 % 2.54 %
Effective rate for fiscal 2021
interest costs 2.54 % 2.32 % 1.41 %
Obligations as of May 31, 2020 3.20 % 3.02 % 1.85 %
Effective rate for fiscal 2020
service costs 4.19 % 4.04 % 3.51 %
Effective rate for fiscal 2020
interest costs 3.47 % 3.28 % 2.84 %
Obligations as of May 31, 2019 3.91 % 3.79 % 3.10 %
Effective rate for fiscal 2019
service costs 4.34 % 4.27 % 3.99 %
Effective rate for fiscal 2019
interest costs 3.92 % 3.80 % 3.37 %
Lowering the discount rates by 100 basis points would increase our net defined
benefit pension, other postretirement benefit, and postemployment benefit plan
expense for fiscal 2021 by approximately $54 million . All obligation-related
experience gains and losses are amortized using a straight-line method over the
average remaining service period of active plan participants or over the average
remaining lifetime of the remaining plan participants if the plan is viewed as
"all or almost all" inactive participants.
Health Care Cost Trend Rates
We review our health care cost trend rates annually. Our review is based on data we collect about our health care claims experience and information provided by our actuaries. This information includes recent plan experience, plan design, overall industry experience and projections, and assumptions used by other similar organizations. Our initial health care cost trend rate is adjusted as necessary to remain consistent with this review, recent experiences, and short-term expectations. Our initial health care cost trend rate assumption is 6.5 percent for retirees age 65 and over and 6.2 percent for retirees under age 65 at the end of fiscal 2020. Rates are graded down annually until the ultimate trend rate of 4.5 percent is reached in 2029 for all retirees. The trend rates are applicable for calculations only if the retirees' benefits increase as a result of health care inflation. The ultimate trend rate is adjusted annually, as necessary, to approximate the current economic view on the rate of long-term inflation plus an appropriate health care cost premium. Assumed trend rates for health care costs have an important effect on the amounts reported for the other postretirement benefit plans. Any arising health care claims cost-related experience gain or loss is recognized in the calculation of expected future claims. Once recognized, experience gains and losses are amortized using a straight-line method over the average remaining service period of active plan participants or over the average remaining lifetime of the remaining plan participants if the plan is viewed as "all or almost all" inactive participants. Financial Statement Impact In fiscal 2020, we recorded net defined benefit pension, other postretirement benefit, and postemployment benefit plan income of$2 million compared to$24 million of expense in fiscal 2019 and$23 million of expense in fiscal 2018. As ofMay 31, 2020 , we had cumulative unrecognized actuarial net losses of$2 billion on our defined benefit pension plans and cumulative unrecognized actuarial net gains of$114 million on our postretirement and postemployment benefit plans, mainly as the result of liability increases from lower interest rates, partially offset by recent increases in the values of plan assets. These unrecognized actuarial net losses will result in increases in our future pension and postretirement benefit expenses because they currently exceed the corridors defined by GAAP. Actual future net defined benefit pension, other postretirement benefit, and postemployment benefit plan income or expense will depend on investment performance, changes in future discount rates, changes in health care cost trend rates, and other factors related to the populations participating in these plans. 34
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
InMarch 2020 , theFinancial Accounting Standards Board (FASB) issued optional accounting guidance for a limited period of time to ease the potential burden in accounting for reference rate reform. The new standard provides expedients and exceptions to existing accounting requirements for contract modifications and hedge accounting related to transitioning from discontinued reference rates, such as LIBOR, to alternative reference rates, if certain criteria are met. The new accounting requirements can be applied as of the beginning of the interim period includingMarch 12, 2020 , or any date thereafter, throughDecember 31, 2022 . We are in the process of reviewing our contracts and arrangements that will be affected by a discontinued reference rate and analyzing the impact of this guidance on our results of operations and financial position. InDecember 2019 , the FASB issued new accounting requirements related to income taxes. The new standard simplifies the accounting for income taxes by removing certain exceptions related to the approach for intraperiod tax allocation, the recognition of deferred tax liabilities for outside basis differences, and the methodology for calculating income taxes in interim periods. The new standard also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies accounting for transactions that result in a step-up in the tax basis of goodwill. The requirements of the new standard are effective for annual reporting periods beginning afterDecember 15, 2020 , and interim periods within those annual periods, which for us is the first quarter of fiscal 2022. Early adoption is permitted. We do not expect this guidance to have a material impact on our results of operations or financial position. InJune 2016 , the FASB issued new accounting requirements related to the measurement of credit losses on financial instruments, including trade receivables. The new accounting requirements replace the incurred loss impairment model with a forward-looking expected credit loss model, which will generally result in earlier recognition of credit losses. The requirements of the new standard and subsequent amendments are effective for annual reporting periods beginning afterDecember 15, 2019 , and interim periods within those annual periods, which for us is the first quarter of fiscal 2021. We will adopt this guidance in the first quarter of fiscal 2021 using a modified retrospective transition approach. We expect to record an immaterial cumulative effect adjustment to retained earnings as of the effective date to align our calculation of credit losses to the new model with consideration of the economic implications of the COVID-19 pandemic. We do not expect this guidance to have a material impact on our results of operations or financial position. NON-GAAP MEASURES We have included in this report measures of financial performance that are not defined by GAAP. We believe that these measures provide useful information to investors, and include these measures in other communications to investors. For each of these non-GAAP financial measures, we are providing below a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure, an explanation of why we believe the non-GAAP measure provides useful information to investors, and any additional material purposes for which our management or Board of Directors uses the non-GAAP measure. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure.
Several measures below are presented on an adjusted basis. The adjustments are either items resulting from infrequently occurring events or items that, in management's judgment, significantly affect the year-to-year assessment of operating results.
Organic Net Sales Growth Rates
We provide organic net sales growth rates for our consolidated net sales and segment net sales. This measure is used in reporting to our Board of Directors and executive management and as a component of the measurement of our performance for incentive compensation purposes. 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 on year-to-year comparability. A reconciliation of these measures to reported net sales growth rates, the relevant GAAP measures, are included in our Consolidated Results of Operations and Results of Segment Operations discussions in the MD&A above.
Adjusted Diluted EPS and Related Constant-currency Growth Rate
This measure is used in reporting to our Board of Directors and executive management and as a component of the 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-to-year basis.
35
--------------------------------------------------------------------------------The reconciliation of our GAAP measure, diluted EPS, to adjusted diluted EPS and the related constant-currency growth rate follows:
Fiscal Year
2020
vs.
2019
Per Share Data 2020 2019 Change 2018 2017 2016
Diluted earnings per share, as
reported $ 3.56 $ 2.90 23 % $ 3.64 $ 2.77 $ 2.77
Tax items (a) (0.09) (0.12) 0.07 - -
Restructuring charges (b) 0.06 0.10 0.11 0.26 0.26
Project-related costs (b) - - 0.01 0.05 0.06
Mark-to-market effects (c) 0.03 0.05 (0.04) (0.01) (0.07)
Product recall (d) 0.03 - - - -
CPW restructuring charges (e) 0.01 0.02 - - -
Investment activity, net (f) - (0.03) - - -
Net tax benefit (g) - (0.01) (0.89) - -
Divestitures loss (gain) (h) - 0.03 - 0.01 (0.10)
Acquisition transaction and
integration costs (i) - 0.03 0.10 - -
Asset impairments (j) - 0.26 0.11 - -
Legal recovery (k) - (0.01) - - -
Adjusted diluted earnings per share $ 3.61 $ 3.22 12 % $ 3.11 $ 3.08 $ 2.92
Foreign currency exchange impact Flat
Adjusted diluted earnings per share
growth, on a constant-currency basis 12 %
Note: Table may not foot due to rounding.
(a)Discrete tax benefit related to the reorganization of certain wholly owned subsidiaries in fiscal 2020 and a discrete tax benefit related to a capital loss carryback recorded in fiscal 2019. Please see Note 15 to the Consolidated Financial Statements in Item 8 of this report. Fiscal 2018 represents a prior year income tax expense adjustment.
(b)Restructuring and project-related charges for previously announced restructuring actions. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report.
(c)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report.
(d)Product recall costs related to our international Green Giant business.
(e)CPW restructuring charges related to initiatives designed to improve profitability and growth that were approved in fiscal 2018 and 2019.
(f)Valuation gains on certain corporate investments.
(g)Net tax benefit resulting from TCJA accounting. Please see Note 15 to the Consolidated Financial Statements in Item 8 of this report.
(h)Loss on the sale of our La Salteña refrigerated dough business inArgentina and gain on the sale of our yogurt business inChina in fiscal 2019. Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report. Loss on the sale of ourMartel, Ohio manufacturing facility in fiscal 2017. Fiscal 2016 represents the gain on the sale of our North American Green Giant product lines, the loss on the sale of ourGeneral Mills de Venezuela CA subsidiary, and the loss on the sale of ourGeneral Mills Argentina S.A. foodservice business. (i)Costs related to the acquisition of Blue Buffalo. Fiscal 2019 represented acquisition integration costs, while fiscal 2018 represented acquisition transaction and integration costs and interest, net related to the debt issued to finance the acquisition. (j)Impairment charges related to our Progresso, Food Should Taste Good, and Mountain High brand intangible assets and certain manufacturing assets in our North America Retail andAsia &Latin America segments in fiscal 2019. Impairment charges related to our Yoki, Mountain High, and Immaculate Baking brand intangible assets in fiscal 2018. Please see Note 6 to the Consolidated Financial Statements in Item 8 of this report.
(k)Represents a legal recovery related to our Yoplait SAS subsidiary.
See our reconciliation below of the effective income tax rate as reported to the
adjusted effective income tax rate for the tax impact of each item affecting
comparability.
36
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Free Cash Flow Conversion Rate
We believe this measure provides useful information to investors because it is important for assessing our efficiency in converting earnings to cash and returning cash to shareholders. The calculation of free cash flow conversion rate and net cash provided by operating activities conversion rate, its equivalent GAAP measure, follows: In Millions Fiscal
2020
Net earnings, including earnings attributable to redeemable and noncontrolling interests, as reported
Tax item (a)
Restructuring charges, net of tax (b)
39.0
Project-related costs, net of tax (b)
1.2
Mark-to-market effects, net of tax (c)
19.0
Product recall, net of tax (d)
17.1
CPW restructuring costs, net of tax (e)
5.0
Investment activity, net, net of tax (f)
3.0
Adjusted net earnings, including earnings attributable to redeemable and noncontrolling interests
Net cash provided by operating activities
3,676.2
Purchases of land, buildings, and equipment
(460.8)
Free cash flow
Net cash provided by operating activities conversion rate
166%
Free cash flow conversion rate
143%
Note: Table may not foot due rounding.
(a)Discrete tax benefit related to the reorganization of certain wholly owned subsidiaries. Please see Note 15 to the Consolidated Financial Statements in Item 8 of this report.
(b)Restructuring and project-related charges for previously announced restructuring actions. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report.
(c)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report.
(d)Product recall costs related to our international Green Giant business.
(e)CPW restructuring charges related to initiatives designed to improve profitability and growth that were approved in fiscal 2018 and 2019.
(f)Valuation adjustments and the loss on sale of certain corporate investments.
See our reconciliation below of the effective income tax rate as reported to the adjusted effective income tax rate for the tax impact of each item affecting comparability.
Constant-currency After-Tax Earnings from Joint Ventures Growth Rate
We believe that this measure provides useful information to investors because it
provides transparency to underlying performance of our joint ventures by
excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year comparability given volatility in foreign currency exchange
markets.
After-tax earnings from joint ventures growth rates on a constant-currency basis
are calculated as follows:
Fiscal 2020 Percentage change in after-tax earnings from joint ventures as reported
27 %
Impact of foreign currency exchange (4) pts Percentage change in after-tax earnings from joint ventures on a constant-currency basis
31 %
Note: Table may not foot due to rounding.
Net Sales Growth Rate for Canada Operating Unit on a Constant-currency Basis
We believe this measure of ourCanada operating unit net sales provides useful information to investors because it provides transparency to the underlying performance for theCanada operating unit within our North America Retail segment by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets. 37
-------------------------------------------------------------------------------- Net sales growth rate for ourCanada operating unit on a constant-currency basis is calculated as follows: Fiscal 2020 Percentage change in net sales as reported 4 % Impact of foreign currency exchange (1) pt
Percentage change in net sales on a constant-currency basis 5 % Note: Table may not foot due to rounding.
Constant-currency Segment Operating Profit Growth Rates
We believe that this measure provides useful information to investors because it
provides transparency to underlying performance of our segments by excluding the
effect that foreign currency exchange rate fluctuations have on year-to-year
comparability given volatility in foreign currency exchange markets.
Our segments' operating profit growth rates on a constant-currency basis are
calculated as follows:
Fiscal 2020
Percentage Change in
Percentage Change in Operating Profit on
Operating Profit as Impact of Foreign Constant-Currency
Reported Currency Exchange Basis
North America Retail 15 % Flat 15 %
Europe & Australia (8) (5) pts (3)
Asia & Latin America (74) % (1) pt (73) %
Note: Table may not foot due
to rounding.
Adjusted Effective Income Tax Rates
We believe this measure provides useful information to investors because it presents the adjusted effective income tax rate on a comparable year-to-year basis.
38
--------------------------------------------------------------------------------Adjusted effective income tax rates are calculated as follows:
Fiscal Year Ended
May 31, 2020 May 26, 2019 May 27, 2018 May 28, 2017 May 29, 2016
Pretax Pretax Pretax Pretax Pretax
Earnings Earnings Earnings Earnings Earnings
In Millions (a) Income Taxes (a) Income Taxes (a) Income Taxes (a) Income Taxes (a) Income Taxes
As reported $2,600.2 $480.5 $2,082.0 $367.8 $2,135.6 $57.3 $2,271.3 $655.2 $2,403.6 $755.2
Tax items (b) - 53.1 - 72.9 - (40.9) - - - -
Restructuring charges (c) 50.2 11.2 77.6 14.6 82.7 21.4 224.1 70.2 229.8 69.0
Project-related costs (c) 1.5 0.3 1.3 0.2 11.3 3.3 43.9 15.7 57.5 20.7
Mark-to-market effects (d) 24.7 5.7 36.0 8.3 (32.1) (10.0) (13.9) (5.1) (62.8) (23.2)
Product recall (e) 19.3 2.2 - - - - - - - -
Investment activity, net
(f) 8.4 5.4 (22.8) (5.2) - - - - - -
Net tax benefit (g) - - - 7.2 - 523.5 - - - -
Divestitures loss (gain)
(h) - - 30.0 13.6 - - 13.5 4.3 (148.2) (82.2)
Acquisition transaction
and integration costs (i) - - 25.6 5.9 83.9 25.4 - - - -
Asset impairments (j) - - 207.4 47.7 96.9 32.0 - - - -
Legal recovery (k) - - (16.2) (5.4) - - - - - -
Hyperinflationary
accounting (l) - - 3.2 - - - - - - -
As adjusted $2,704.3 $558.5 $2,424.1 $527.6 $2,378.3 $612.0 $2,538.9 $740.3 $2,479.9 $739.5
Effective tax rate:
As reported 18.5% 17.7% 2.7% 28.8% 31.4%
As adjusted 20.7% 21.8% 25.7% 29.2% 29.8%
Sum of adjustments to
income taxes $78.0 $159.8 $554.7 $85.1 $(15.7)
Average number of common
shares - diluted EPS 613.3 605.4 585.7 598.0 611.9
Impact of income tax
adjustments on adjusted
diluted EPS $(0.13) $(0.26) $(0.95) $(0.14) $0.03 Note: Table may not foot due to rounding.
(a)Earnings before income taxes and after-tax earnings from joint ventures.
(b)Discrete tax benefit related to the reorganization of certain wholly owned subsidiaries in fiscal 2020 and a discrete tax benefit related to a capital carryback recorded in fiscal 2019. Please see Note 15 to the Consolidated Financial Statements in Item 8 of this report. Fiscal 2018 represents a prior year income tax expense adjustment.
(c)Restructuring and project-related charges for previously announced restructuring actions. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report.
(d)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report
(e)Product recall costs related to our international Green Giant business.
(f)Valuation losses and the loss on sale of certain corporate investments in fiscal 2020. Valuation gains on certain corporate investments in fiscal 2019.
(g)Net tax benefit resulting from TCJA accounting. Please see Note 15 to the Consolidated Financial Statements in Item 8 of this report.
(h)Loss on the sale of our La Salteña refrigerated dough business inArgentina and gain on the sale of our yogurt business inChina in fiscal 2019. Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report. Loss on the sale of ourMartel, Ohio manufacturing facility in fiscal 2017. Fiscal 2016 represents the gain on the sale of our North American Green Giant product lines, the loss on the sale of ourGeneral Mills de Venezuela CA subsidiary, and the loss on the sale of ourGeneral Mills Argentina S.A. foodservice business. (i)Costs related to the acquisition of Blue Buffalo. Fiscal 2019 represented acquisition integration costs, while fiscal 2018 represented acquisition transaction and integration costs and interest, net related to the debt issued to finance the transaction. (j)Impairment charges related to our Progresso, Food Should Taste Good, and Mountain High brand intangible assets and certain manufacturing assets in our North America Retail andAsia &Latin America segments in fiscal 2019. Impairment charges related to our Yoki, Mountain High, and Immaculate Baking brand intangible assets in fiscal 2018. Please see Note 6 to the Consolidated Financial Statements in Item 8 of this report.
(k)Represents a legal recovery related to our Yoplait SAS subsidiary.
(l)Represents the impact of hyperinflationary accounting for our
Adjusted Operating Profit as a Percent of
We believe this measure provides useful information to investors because it is
important for assessing our operating profit margin on a comparable year-to-year
basis.
39
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Our adjusted operating profit margins are calculated as follows:
Fiscal Year
Percent of Net Sales 2020 2019 2018 2017 2016
Operating profit as
reported $ 2,953.9 16.8 % $ 2,515.9 14.9 % $ 2,419.9 15.4 % $ 2,492.1 16.0 % $ 2,719.1 16.4 %
Restructuring charges
(a) 50.2 0.3 % 77.6 0.5 % 82.7 0.5 % 221.9 1.4 % 209.3 1.3 %
Project-related costs
(a) 1.5 - % 1.3 - % 11.3 0.1 % 43.9 0.3 % 57.5 0.4 %
Mark-to-market
effects (b) 24.7 0.1 % 36.0 0.2 % (32.1) (0.2) % (13.9) (0.1) % (62.8) (0.4) %
Product recall (c) 19.3 0.1 % - - % - - % - - % - - %
Investment activity,
net (d) 8.4 - % (22.8) (0.1) % - - % - - % - - %
Divestitures loss
(gain) (e) - - % 30.0 0.2 % - - % 6.5 - % (148.2) (0.9) %
Acquisition
transaction and
integration costs (f) - - % 25.6 0.1 % 34.0 0.2 % - - % - - %
Asset impairments (g) - - % 207.4 1.2 % 96.9 0.6 % - - % - - %
Legal recovery (h) - - % (16.2) (0.1) % - - % - - % - - %
Hyperinflationary
accounting (i) - - % 3.2 - % - - % - - % - - %
Adjusted operating
profit $ 3,058.0 17.3 % $ 2,858.0 16.9 % $ 2,612.7 16.6 % Note: Table may not foot due to rounding.
(a)Restructuring and project-related charges for previously announced restructuring actions. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report.
(b)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report.
(c)Product recall costs related to our international Green Giant business.
(d)Valuation losses and the loss on sale of certain corporate investments in fiscal 2020. Valuation gains on certain corporate investments in fiscal 2019.
(e)Loss on the sale of our La Salteña refrigerated dough business inArgentina and gain on the sale of our yogurt business inChina in fiscal 2019. Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report. Loss on the sale of ourMartel, Ohio manufacturing facility in fiscal 2017. Fiscal 2016 represents the gain on the sale of our North American Green Giant product lines, the loss on the sale of ourGeneral Mills de Venezuela CA subsidiary, and the loss on the sale of ourGeneral Mills Argentina S.A. foodservice business.
(f)Costs related to the acquisition of Blue Buffalo. Fiscal 2019 represented acquisition integration costs, while fiscal 2018 represented acquisition transaction and integration costs.
(g)Impairment charges related to our Progresso, Food Should Taste Good, and Mountain High brand intangible assets and certain manufacturing assets in our North America Retail andAsia &Latin America segments in fiscal 2019. Impairment charges related to our Yoki, Mountain High, and Immaculate Baking brand intangible assets in fiscal 2018. Please see Note 6 to the Consolidated Financial Statements in Item 8 of this report.
(h)Represents a legal recovery related to our Yoplait SAS subsidiary.
(i)Represents the impact of hyperinflationary accounting for our
Adjusted Operating Profit Growth 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-to-year basis. Additionally, the measure is evaluated on a
constant-currency basis by excluding the effect that foreign currency exchange
rate fluctuations have on year-to-year comparability given the volatility in
foreign currency exchange rates.
40
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Our adjusted operating profit growth on a constant-currency basis is calculated
as follows:
Fiscal Year
2020 2019 Change
Operating profit as reported $2,953.9 $2,515.9 17 %
Restructuring charges (a) 50.2 77.6
Project-related costs (a) 1.5 1.3
Mark-to-market effects (b) 24.7 36.0
Product recall (c) 19.3 -
Investment activity, net (d) 8.4 (22.8)
Divestitures loss (e) - 30.0
Acquisition integration costs (f) - 25.6
Asset impairments (g) - 207.4
Legal recovery (h) - (16.2)
Hyperinflationary accounting (i) - 3.2
Adjusted operating profit $3,058.0 $2,858.0 7 %
Foreign currency exchange impact Flat
Adjusted operating profit growth, on a constant-currency basis
7 %
Note: Table may not foot due to rounding.
(a)Restructuring and project-related charges for previously announced restructuring actions. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report.
(b)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report.
(c)Product recall costs related to our international Green Giant business.
(d)Valuation losses and the loss on sale of certain corporate investments in fiscal 2020. Valuation gains on certain corporate investments in fiscal 2019.
(e)Loss on the sale of our La Salteña and refrigerated dough business in
(f)Integration costs resulting from the acquisition of Blue Buffalo in fiscal 2018.
(g)Impairment charges related to our Progresso, Food Should Taste Good, and Mountain High brand intangible assets and certain manufacturing assets in our North America Retail andAsia &Latin America segments. Please see Note 6 to the Consolidated Financial Statements in Item 8 of this report.
(h)Represents a legal recovery related to our Yoplait SAS subsidiary.
(i)Represents the impact of hyperinflationary accounting for our
Net Debt-to-Adjusted Earnings before Net Interest, Income Taxes, Depreciation
and Amortization (EBITDA)
We believe that this measure provides useful information to investors because it is an indicator of our ability to incur additional debt and to service our existing debt.
41
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The reconciliation of adjusted EBITDA to net earnings, including earnings
attributable to redeemable and noncontrolling interests, its GAAP equivalent, as
well as the calculation of the net debt-to-adjusted EBITDA ratio are as follows:
Fiscal Year
In Millions 2020 2019
Total debt (a) $ 13,539.5 $ 14,490.0
Cash 1,677.8 450.0
Net debt $ 11,861.7 $ 14,040.0 Net earnings, including earnings attributable to redeemable and noncontrolling interests, as reported
$ 2,210.8 $ 1,786.2 Income taxes 480.5 367.8 Interest, net 466.5 521.8 Depreciation and amortization 594.7
620.1
EBITDA 3,752.5
3,295.9
After-tax earnings from joint ventures (91.1) (72.0) Restructuring charges (b) 50.2 77.6 Project-related costs (b) 1.5 1.3 Mark-to-market effects (c) 24.7 36.0 Product recall (d) 19.3 - Investment activity, net (e) 8.4
(22.8)
Divestitures loss (f) -
30.0
Acquisition integration costs (g) - 25.6 Asset impairments (h) - 207.4 Legal recovery (i) - (16.2) Hyperinflationary accounting (j) -
3.2
Adjusted EBITDA$ 3,765.6 $
3,566.0
Net debt-to-adjusted EBITDA ratio 3.2
3.9
Note: Table may not foot due to rounding.
(a)Notes payable and long-term debt, including current portion.
(b)Restructuring and project-related charges for previously announced restructuring actions. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report.
(c)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report.
(d)Product recall costs related to our international Green Giant business.
(e)Valuation losses and the loss on sale of certain corporate investments in fiscal 2020. Valuation gains on certain corporate investments in fiscal 2019.
(f)Loss on the sale of our La Salteña refrigerated dough business inArgentina and the gain on the sale of our yogurt business inChina . Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report.
(g)Integration costs resulting from the acquisition of Blue Buffalo in fiscal 2018.
(h)Impairment charges related to our Progresso, Food Should Taste Good, and Mountain High brand intangible assets and certain manufacturing assets in our North America Retail andAsia &Latin America segments. Please see Note 6 to the Consolidated Financial Statements in Item 8 of this report.
(i)Represents a legal recovery related to our Yoplait SAS subsidiary.
(j)Represents the impact of hyperinflationary accounting for our
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 theSEC and in our reports to shareholders. 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. 42
-------------------------------------------------------------------------------- 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: the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of the COVID-19 pandemic; competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets, changes in capital structure; changes in the legal and regulatory environment, including tax 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; 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 this report, which could also affect our future results.
We undertake no obligation to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events.
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