GENERAL MILLS, INC. INTRODUCTION
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the fiscal year endedMay 26, 2019 for important background regarding, among other things, our key business drivers. Significant trademarks and service marks used in our business are set forth in italics herein. Certain terms used throughout this report are defined in the "Glossary" section below. The impact that the recent COVID-19 outbreak will have on our consolidated results of operations is uncertain. We expect a COVID-19-related decrease in consumer traffic in away-from-home food outlets across all our major markets to negatively impact our net sales to customers in those channels for at least the remainder of fiscal 2020. We have also seen increased orders from retail customers inNorth America andEurope subsequent to the end of the third quarter of fiscal 2020 in response to increased consumer demand for food at home. 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 will continue to evaluate the nature and extent of the impact to our business and consolidated results of operations.
CONSOLIDATED RESULTS OF OPERATIONS
Third Quarter Results In the third quarter of fiscal 2020, net sales and organic net sales essentially matched the same period last year. Operating profit margin of 15.6 percent increased 10 basis points, primarily driven by a decrease in restructuring expense in the third quarter of fiscal 2020 and the divestiture loss recorded in the third quarter of fiscal 2019, partially offset by higher selling, general, and administrative (SG&A) expenses in the third quarter of fiscal 2020. Adjusted operating profit margin decreased 130 basis points to 16.1 percent compared to the same period last year, primarily driven by higher SG&A expenses. Diluted earnings per share of$0.74 essentially matched the third quarter of fiscal 2019. Adjusted diluted earnings per share of$0.77 decreased 6 percent on a constant-currency basis compared to the third quarter last year. See the "Non-GAAP Measures" section below for a description of our use of measures not defined by GAAP. A summary of our consolidated financial results for the third quarter of fiscal 2020 follows: Quarter Ended In millions, Feb. 23, 2020 Percent except per vs. Feb. 24, of Net Constant-Currency
Quarter Ended Feb. 23, 2020 share 2019 Sales Growth (a) Net sales$ 4,180.3 Flat Operating profit 650.8 Flat 15.6 % Net earnings attributable to General Mills 454.1 2 % Diluted earnings per share$ 0.74 Flat Organic net sales growth rate (a) Flat Adjusted operating profit (a) 675.1 (7) % 16.1 % (8) %
Adjusted diluted earnings per share (a)
(6) %
(a) See the "Non-GAAP Measures" section below for our use of measures not defined by GAAP.
Consolidated net sales were as follows:
Quarter Ended
Feb. 23, 2020
vs Feb. 24,
Feb. 23, 2020 2019 Feb. 24, 2019
Net sales (in millions) $ 4,180.3 Flat $ 4,198.3
Contributions from volume growth (a) (1) pt
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.
Net sales in the third quarter of fiscal 2020 essentially matched the same period in fiscal 2019.
25
--------------------------------------------------------------------------------Components of organic net sales growth are shown in the following table:
Quarter EndedFeb. 23, 2020 vs. Quarter EndedFeb. 24, 2019 Contributions from organic volume growth (a)
Flat
Organic net price realization and mix 1 pt Organic net sales growth Flat Foreign currency exchange Flat Divestitures Flat Net sales growth Flat 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 the third quarter of fiscal 2020 essentially matched the same period in fiscal 2019.
Cost of sales increased$22 million from the third quarter of fiscal 2019 to$2,777 million . The increase included a$19 million increase attributable to product rate and mix and a$19 million decrease due to lower volume. We recorded a$9 million net increase in cost of sales related to the mark-to-market valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2020 compared to a net decrease of$6 million in the third quarter of fiscal 2019. In addition, we recorded$7 million of restructuring charges in cost of sales in the third quarter of fiscal 2020 (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report). SG&A expenses increased$50 million to$747 million in the third quarter of fiscal 2020 compared to the same period in fiscal 2019, primarily reflecting increased media and advertising expenses and increased administrative expenses. SG&A expenses as a percent of net sales in the third quarter of fiscal 2020 increased 130 basis points compared to the third quarter of fiscal 2019.
Divestiture loss totaled
Restructuring, impairment, and other exit costs totaled$6 million in the third quarter of fiscal 2020 related to actions previously announced. In the third quarter of fiscal 2019, we recorded$60 million of restructuring charges primarily related to actions to drive efficiencies in targeted areas of our global supply chain.
Benefit plan non-service income totaled
Interest, net for the third quarter of fiscal 2020 totaled$110 million , down$21 million from the third quarter of fiscal 2019, primarily driven by lower average debt balances and lower rates. The effective tax rate for the third quarter of fiscal 2020 was 20.7 percent compared to 17.7 percent for the third quarter of fiscal 2019. The 3.0 percentage point increase was primarily due to certain discrete tax benefits in fiscal 2019, partially offset by changes in earnings mix by jurisdiction in fiscal 2020. Our adjusted effective tax rate was 21.0 percent in the third quarter of fiscal 2020 compared to 19.9 percent in the third quarter of fiscal 2019 (see the "Non-GAAP Measures" section below for a description of our use of measures not defined by GAAP). 26 -------------------------------------------------------------------------------- After-tax earnings from joint ventures for the third quarter of fiscal 2020 decreased to$11 million compared to$12 million in the same period in fiscal 2019. On a constant-currency basis, after-tax earnings from joint ventures decreased 5 percent (see the "Non-GAAP Measures" section below for a description of our use of measures not defined by GAAP). The components of our joint ventures' net sales growth are shown in the following table: Quarter EndedFeb. 23, 2020 vs. Quarter Ended Feb. 24, 2019 CPW (a) HDJ (b)
Total
Contributions from volume growth (c) (1) pt (10) pts Net price realization and mix 2 pts 5 pts Net sales growth in constant currency 1 pt (5) pts Flat Foreign currency exchange (1) pt 1 pt Flat Net sales growth Flat (4) pts (1) pt Note: Table may not foot due to rounding. (a) Cereal Partners Worldwide (CPW) (b) Häagen-Dazs Japan, Inc. (HDJ) (c) Measured in tons based on the stated weight of our product shipments.
Average diluted shares outstanding increased by 8 million in the third quarter of fiscal 2020 from the same period a year ago due to option exercises.
Nine-Month Results In the nine-month period endedFebruary 23, 2020 , net sales decreased 1 percent compared to the same period last year. Organic net sales in the nine-month period endedFebruary 23, 2020 , essentially matched the same period last year. Operating profit margin of 16.9 percent increased 270 basis points from year-ago levels, primarily driven by restructuring charges and impairment charges recorded for certain intangible and manufacturing assets in the nine-month period endedFebruary 24, 2019 , favorable net price realization and mix, and the purchase accounting inventory adjustment in the first quarter of fiscal 2019 related to our acquisition ofBlue Buffalo Products, Inc. (Blue Buffalo), partially offset by higher input costs and higher SG&A expenses. Adjusted operating profit margin increased 40 basis points to 17.2 percent, primarily driven by favorable net price realization and mix and the purchase accounting inventory adjustment in the first quarter of fiscal 2019 related to our acquisition of Blue Buffalo, partially offset by higher input costs and higher SG&A expenses. Diluted earnings per share of$2.54 increased 30 percent in the nine-month period endedFebruary 23, 2020 , and adjusted diluted earnings per share of$2.51 increased 5 percent on a constant-currency basis compared to the same period last year (see the "Non-GAAP Measures" section below for a description of our use of measures not defined by GAAP).
A summary of our consolidated financial results for the nine-month period ended
Nine-Month
Period Ended
Feb. 23, 2020
Nine-Month Period Ended
except per share 2019 Net Sales Constant-Currency Growth (a)
Net sales $ 12,603.6 (1) %
Operating profit 2,124.4 18 % 16.9 %
Net earnings attributable to
General Mills 1,555.5 32 %
Diluted earnings per share $ 2.54 30 %
Organic net sales growth rate (a) Flat
Adjusted operating profit (a) 2,170.3 2 % 17.2 % 2 %
Adjusted diluted earnings per share
(a) $ 2.51 5 % 5 %
Note: Table may not foot due to
rounding
(a) See the "Non-GAAP Measures" section below for our use of measures not defined by GAAP.
27
--------------------------------------------------------------------------------
Consolidated net sales were as follows:
Nine-Month Period Ended
Feb. 23, 2020
vs Feb. 24,
Feb. 23, 2020 2019 Feb. 24, 2019
Net sales (in millions) $ 12,603.6 (1) % $ 12,703.5
Contributions from volume growth (a) (1) pt
Net price realization and mix 1 pt
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 1 percent decrease in net sales for the nine-month period ended February 23,
2020 , reflects lower contributions from volume growth and unfavorable foreign
currency exchange, partially offset by favorable net price realization and mix.
Components of organic net sales growth are shown in the following table:
Nine-Month Period EndedFeb. 23, 2020 vs. Nine-Month Period EndedFeb. 24, 2019 Contributions from organic volume growth (a) (1)pt Organic net price realization and mix 1 pt Organic net sales growth Flat Foreign currency exchange (1)pt Divestitures Flat Net sales growth (1)pt
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 the nine-month period endedFebruary 23, 2020 , essentially matched the same period last year as favorable organic net price realization and mix was offset by lower contributions from organic volume growth. Cost of sales decreased$166 million from the nine-month period endedFebruary 24, 2019 , to$8,242 million . The decrease was driven by a$122 million decrease due to lower volume, partially offset by a$20 million increase attributable to product rate and mix. We recorded a$53 million charge in the nine-month period endedFebruary 24, 2019 , related to the fair value adjustment of inventory acquired in the Blue Buffalo acquisition. We recorded a$1 million net increase in cost of sales related to the mark-to-market valuation of certain commodity positions and grain inventories in the nine-month period endedFebruary 23, 2020 , compared to a net increase of$36 million in the nine-month period endedFebruary 24, 2019 . In addition, we recorded$24 million of restructuring charges in cost of sales in the nine-month period endedFebruary 23, 2020 (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report). SG&A expenses totaled$2,224 million in the nine-month period endedFebruary 23, 2020 , compared to$2,193 million in the same period in fiscal 2019. The increase in SG&A expenses primarily reflects higher media and advertising expenses and increased administrative expenses, partially offset by lower other consumer-related expenses. SG&A expenses as a percent of net sales in the nine-month period endedFebruary 23, 2020 , increased 30 basis points compared with the same period of fiscal 2019.
Divestiture loss totaled
Restructuring, impairment, and other exit costs totaled$13 million in the nine-month period endedFebruary 23, 2020 , compared to$268 million in the same period last year. In the nine-month period endedFebruary 24, 2019 , we recorded impairment charges of$193 million related to certain brand intangible assets. In addition, we recorded restructuring charges of$59 million related to actions to drive efficiencies in targeted areas of our global supply chain and a$14 million charge related to the impairment of certain manufacturing assets within the North America Retail segment in the nine-month period endedFebruary 24, 2019 . Benefit plan non-service income totaled$91 million in the nine-month period endedFebruary 23, 2020 , compared to$63 million in the same period last year, primarily reflecting lower interest costs. 28 -------------------------------------------------------------------------------- Interest, net for the nine-month period endedFebruary 23, 2020 , decreased$49 million to$348 million compared to the same period of fiscal 2019, primarily driven by lower average debt balances and lower rates. The effective tax rate for the nine-month period endedFebruary 23, 2020 , was 18.3 percent compared to 21.4 percent for the same period last year. The 3.1 percentage point decrease was primarily due to the net benefit related to the reorganization of certain wholly owned subsidiaries in fiscal 2020 and changes in earnings mix by jurisdiction, partially offset by certain discrete tax benefits in fiscal 2019. Our adjusted effective tax rate was 21.3 percent in the nine-month period endedFebruary 23, 2020 , compared to 22.2 percent in the same period of 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 to$58 million for the nine-month period endedFebruary 23, 2020 compared to$52 million in the same period in fiscal 2019, primarily driven by our share of lower after-tax restructuring charges at CPW compared to the same period in fiscal 2019. On a constant-currency basis, after-tax earnings from joint ventures increased 11 percent (see the "Non-GAAP Measures" section below for a description of our use of measures not defined by GAAP). The components of our joint ventures' net sales growth are shown in the following table: Nine-Month Period EndedFeb. 23, 2020 vs. Nine-Month Period Ended Feb. 24, 2019 CPW HDJ
Total
Contributions from volume growth (a) (1) pt (7)
pts
Net price realization and mix 3 pts 5
pts
Net sales growth in constant currency 1 pt (2) pts 1 pt Foreign currency exchange (2) pts 3 pts (1) pt Net sales growth (1) pt 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 the nine-month
period ended
SEGMENT OPERATING RESULTS Our businesses are organized into five operating segments: North America Retail; Convenience Stores & Foodservice;Europe &Australia ;Asia &Latin America ; and Pet. We are reporting the Pet operating segment results on a one-month lag. Please refer to Note 17 of the Consolidated Financial Statements in Part I, Item 1 of this report for a description of our operating segments.
North America Retail Segment Results
North America Retail net sales were as follows:
Quarter Ended Nine-Month Period Ended
Feb. 23, 2020
vs Feb. 24, Feb. 23, 2020 vs
Feb. 23, 2020 2019 Feb. 24, 2019 Feb. 23, 2020 Feb. 24, 2019 Feb. 24, 2019
Net sales (in millions) $ 2,501.9 (1) % $ 2,518.6 $ 7,554.1 Flat $ 7,583.5
Contributions from
volume growth (a) Flat Flat
Net price realization
and mix (1) pt Flat
Foreign currency
exchange Flat Flat
Note: Table may not foot due to rounding.
(a)Measured in tons based on the stated weight of our product shipments.
North America Retail net sales decreased 1 percent in the third quarter of fiscal 2020 compared to the same period in fiscal 2019, driven by unfavorable net price realization and mix.
North America Retail net sales in the nine-month period ended
29
--------------------------------------------------------------------------------
The components of North America Retail organic net sales growth are shown in the
following table:
Nine-Month
Quarter Ended Period Ended
Feb. 23, 2020 Feb. 23, 2020
Contributions from organic
volume growth (a) Flat Flat
Organic net price realization
and mix (1) pt Flat
Organic net sales growth (1) pt Flat
Foreign currency exchange Flat Flat
Net sales growth (1) pt FlatNote: 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 decreased 1 percent in the third quarter of fiscal 2020 compared to the same period in fiscal 2019, driven by unfavorable organic net price realization and mix.
North America Retail organic net sales in the nine-month period ended
North America Retail net sales percentage change by operating unit are shown in
the following table:
Nine-Month
Quarter Ended Period Ended
Feb. 23, 2020 Feb. 23, 2020
U.S. Meals & Baking (2) % (1) %
U.S. Snacks (1) (1)
U.S. Cereal (1) 2
U.S. Yogurt and Other (1) (2)
Canada (a) 6 1
Total (1) % Flat
(a)On a constant-currency basis, Canada net sales increased 5 percent for the
third quarter of fiscal 2020 and increased 2 percent for the nine-month period
ended February 23, 2020 , compared to the same periods in fiscal 2019. See the
"Non-GAAP Measures" section below for our use of this measure not defined by
GAAP.
Segment operating profit decreased 9 percent to $532 million in the third
quarter of fiscal 2020 compared to $582 million in the same period in fiscal
2019, primarily driven by higher media expense, unfavorable net price
realization and mix, and higher input costs. Segment operating profit decreased
9 percent on a constant-currency basis in the third quarter of fiscal 2020
compared to the same period in fiscal 2019 (see the "Non-GAAP Measures" section
below for our use of this measure not defined by GAAP).
Segment operating profit decreased 1 percent to $1,734 million in the nine-month
period ended February 23, 2020 , compared to $1,750 million in the same period in
fiscal 2019, primarily driven by higher SG&A expenses. Segment operating profit
decreased 1 percent on a constant-currency basis in the nine-month period ended
February 23, 2020 , compared to the same period in fiscal 2019 (see the "Non-GAAP
Measures" section below for our use of this measure not defined by GAAP).
Convenience Stores & Foodservice Segment Results
Convenience Stores & Foodservice net sales were as follows:
Quarter Ended Nine-Month Period Ended
Feb. 23, 2020 Feb. 23,
Feb. 23, vs Feb. 24, Feb. 24, 2020 vs Feb.
2020 2019 2019 Feb. 23, 2020 24, 2019 Feb. 24, 2019
Net sales (in millions) $ 464.8 (2) % $ 472.5 $ 1,423.3 (2) % $ 1,450.1
Contributions from volume
growth (a) (2) pts (2) pts
Net price realization and
mix 1 pt Flat
Note: Table may not foot due to rounding. (a) Measured in tons based on the stated weight of our product shipments.
30
-------------------------------------------------------------------------------- Convenience Stores & Foodservice net sales decreased 2 percent in the third quarter of fiscal 2020 compared to the same period in fiscal 2019, driven by a decrease in contributions from volume growth, partially offset by favorable net price realization and mix.
Convenience Stores & Foodservice net sales decreased 2 percent in the nine-month
period ended
The components of Convenience Stores & Foodservice organic net sales growth are shown in the following table:
Nine-Month
Quarter Ended Period Ended
Feb. 23, 2020 Feb. 23, 2020
Contributions from organic volume growth (a) (2)pts (2)pts
Organic net price realization and mix 1 pt Flat Organic net sales growth (2)pts (2)pts Net sales growth (2)pts (2)pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
Segment operating profit decreased 5 percent to
Segment operating profit decreased 2 percent to$298 million in the nine-month period endedFebruary 23, 2020 , compared to$303 million in the same period of fiscal 2019, primarily driven by a decrease in contributions from volume growth.
Quarter
Ended Nine-Month Period Ended
Feb. 23,
2020 vs. Feb. 23, 2020
Feb. 24, Feb. 24, vs. Feb. 24,
Feb. 23, 2020 2019 2019 Feb. 23, 2020 2019 Feb. 24, 2019
Net sales (in millions) $ 421.9 (2) % $ 432.7 $ 1,308.9 (6) % $ 1,387.2
Contributions from volume
growth (a) (1) pt (4) pts
Net price realization and
mix Flat 1 pt
Foreign currency exchange (1) pt (3) ptsNote: Table may not foot due to rounding. (a) Measured in tons based on the stated weight of our product shipments.
Europe &Australia net sales decreased 6 percent in the nine-month period endedFebruary 23, 2020 , compared to the same period in fiscal 2019, driven by a decrease in contributions from volume growth and unfavorable foreign currency exchange, partially offset by favorable net price realization and mix. The components ofEurope &Australia organic net sales growth are shown in the following table: Nine-Month Quarter Ended Period Ended Feb. 23, 2020 Feb. 23, 2020 Contributions from organic volume growth (a) (1) pt (4) pts Organic net price realization and mix Flat 1 pt Organic net sales growth (1) pt (3) pts Foreign currency exchange (1) pt (3) pts Net sales growth (2) pts (6) pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
31
--------------------------------------------------------------------------------
Europe & Australia organic net sales decreased 1 percent in the third quarter of
fiscal 2020 compared to the same period in fiscal 2019, driven by a decrease in
contributions from organic volume growth.
Segment operating profit decreased to$22 million in the third quarter of fiscal 2020 from$24 million in the same period in fiscal 2019, driven by higher input costs, partially offset by lower SG&A expenses. Segment operating profit decreased 11 percent on a constant-currency basis in the third quarter of fiscal 2020 compared to the same period in fiscal 2019 (see the "Non-GAAP Measures" section below for our use of this measure not defined by GAAP). Segment operating profit of$81 million in the nine-month period endedFebruary 23, 2020 , essentially matched the same period in fiscal 2019, as lower SG&A expenses and favorable net price realization and mix were offset by a decrease in contributions from volume growth and higher input costs. Segment operating profit increased 3 percent on a constant-currency basis in the nine-month period endedFebruary 23, 2020 , compared to the same period in fiscal 2019 (see the "Non-GAAP Measures" section below for our use of this measure not defined by GAAP).
Quarter Ended Nine-Month Period Ended
Feb. 23, 2020 Feb. Feb.
vs. Feb. 24, 24, 23, Feb. 23, 2020 vs.
Feb. 23, 2020 2019 2019 2020 Feb. 24, 2019 Feb. 24, 2019 Net sales (in millions)$ 408.2 (5) %$ 427.7 $ 1,177.3 (6) %$ 1,257.4 Contributions from volume growth (a) (2) pts (6) pts Net price realization and mix Flat 2 pts Foreign currency exchange (3) pts (2) 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 5 percent in the third quarter of fiscal 2020 compared to the same period in fiscal 2019, driven by unfavorable foreign currency exchange and a decrease in contributions from volume growth. The decrease in net sales included declines in ice cream net sales resulting from lower consumer traffic at Häagen-Dazs shops and foodservice outlets due to the impact of COVID-19 inAsia .Asia &Latin America net sales decreased 6 percent in the nine-month period endedFebruary 23, 2020 , compared to the same period in fiscal 2019, driven by a decrease in contributions from volume growth and unfavorable foreign currency exchange, partially offset by favorable net price realization and mix. The components ofAsia &Latin America organic net sales growth are shown in the following table: Quarter Ended Nine-Month Period Ended Feb. 23, 2020 Feb. 23, 2020 Contributions from organic volume growth (a) 1 pt (1)
pt
Organic net price realization and mix (1) pt 1 pt Organic net sales growth Flat (1) pt Foreign currency exchange (3) pts (2) pts Divestitures (b) (2) pts (4) pts Net sales growth (5) pts (6) 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
Asia &Latin America organic net sales were flat in the third quarter of fiscal 2020 compared to the same period in fiscal 2019, as an increase in contributions from organic volume growth was offset by unfavorable net price realization and mix. 32
--------------------------------------------------------------------------------
Segment operating profit decreased to$8 million in the third quarter of fiscal 2020 from$20 million in the same period in fiscal 2019, including declines in ice cream net sales resulting from lower consumer traffic at Häagen-Dazs shops and foodservice outlets due to the impact of COVID-19 inAsia and higher SG&A expenses. Segment operating profit decreased 64 percent on a constant-currency basis in the third quarter of fiscal 2020 compared to the same period in fiscal 2019 (see the "Non-GAAP Measures" section below for our use of this measure not defined by GAAP). Segment operating profit decreased to$43 million in the nine-month period endedFebruary 23, 2020 , from$50 million in the same period in fiscal 2019, primarily driven by higher input costs and a decrease in contributions from volume growth, partially offset by favorable net price realization and mix and lower SG&A expenses. Segment operating profit decreased 13 percent on a constant-currency basis in the nine-month period endedFebruary 23, 2020 , compared to the same period in fiscal 2019 (see the "Non-GAAP Measures" section below for our use of this measure not defined by GAAP).
We expect the COVID-19 outbreak to continue to result in reduced consumer traffic at Häagen-Dazs shops and foodservice outlets during the fourth quarter of fiscal 2020.
Pet Segment Results
Pet net sales were as follows:
Nine-Month Period
Quarter Ended Ended
Feb. 23, Feb. 23, 2020 vs Feb. 24, Nov. 24, 2019 vs
2020 Feb. 24, 2019 2019
11 % $ 346.8 $ 1,140.0 11 % $ 1,025.3
Contributions from volume
growth (a) 6 pts 6 pts
Net price realization and
mix 5 pts 5 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 11 percent in the quarter and nine-month periods endedFebruary 23, 2020 , compared to the same periods in fiscal 2019, driven by increased contributions from volume growth and favorable net price realization and mix. The components of Pet organic net sales growth are shown in the following table: Quarter Ended Nine-Month Period Ended Feb. 23, 2020 Feb. 23, 2020 Contributions from organic volume growth (a) 6 pts 6 pts Organic net price realization and mix 5 pts 5 pts Organic net sales growth 11 pts 11 pts Net sales growth 11 pts 11 pts Note: Table may not foot due to rounding. (a) Measured in tons based on the stated weight of our product shipments.
Segment operating profit increased 29 percent to
Segment operating profit increased 62 percent to$256 million in the nine-month period endedFebruary 23, 2020 , compared to$158 million in the same period of fiscal 2019, primarily driven by a$53 million purchase accounting adjustment related to inventory acquired in the first quarter of fiscal 2019, favorable net price realization and mix, and an increase in contributions from volume growth, partially offset by higher media and advertising expenses. 33 --------------------------------------------------------------------------------
UNALLOCATED CORPORATE ITEMS Unallocated corporate expense totaled$92 million in the third quarter of fiscal 2020 compared to$49 million in the same period in fiscal 2019. We recorded$7 million of restructuring charges in cost of sales in the third quarter of fiscal 2020. We recorded a$9 million net increase in expense related to the mark-to-market valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2020 compared to a$6 million net decrease in expense in the same period last year. We recorded$3 million of losses related to certain investment valuation adjustments in the third quarter of fiscal 2020. During the third quarter of fiscal 2019, we recorded a$16 million legal recovery related to our Yoplait SAS subsidiary. We also recorded$6 million of integration costs in the third quarter of fiscal 2019 related to the acquisition of Blue Buffalo. Unallocated corporate expense totaled$275 million in the nine-month period endedFebruary 23, 2020 , compared to$239 million in the same period last year. In the nine-month period endedFebruary 23, 2020 , we recorded$24 million of restructuring charges in cost of sales. We recorded a$1 million net increase in expense related to the mark-to-market valuation of certain commodity positions and grain inventories in the nine-month period endedFebruary 23, 2020 , compared to a$36 million net increase in expense in the same period last year. We recorded$7 million of net losses related to certain investment valuation adjustments and the loss on sale of certain corporate investments in the nine-month period endedFebruary 23, 2020 , compared to$13 million of gains in the same period last year. In addition, we recorded$21 million of integration costs related to the acquisition of Blue Buffalo, a$3 million loss related to the impact of hyperinflationary accounting for ourArgentina subsidiary, and a$16 million legal recovery related to our Yoplait SAS subsidiary in the nine-month period endedFebruary 24, 2019 . LIQUIDITY During the nine-month period endedFebruary 23, 2020 , cash provided by operations was$2,160 million compared to$2,028 million in the same period last year. The$132 million increase was primarily driven by a$379 million increase in net earnings and a$55 million change in current assets and liabilities, partially offset by a$207 million change in non-cash restructuring, impairment, and other exit costs primarily driven by impairment charges recorded for certain intangible and manufacturing assets in the nine-month period endedFebruary 24, 2019 . The$55 million change in current assets and liabilities included a$62 million change in other current liabilities and a$42 million change in the timing of accounts payable, partially offset by a$78 million change in inventories. Cash used by investing activities during the nine-month period endedFebruary 23, 2020 , was$305 million compared to$408 million for the same period in fiscal 2019. Investments of$269 million in land, buildings, and equipment in the nine-month period endedFebruary 23, 2020 , decreased by$98 million compared to the same period a year ago. Cash used by financing activities during the nine-month period endedFebruary 23, 2020 , was$1,691 million compared to$1,458 million in the same period in fiscal 2019. We had$812 million of net debt repayments in the nine-month period endedFebruary 23, 2020 , compared to$724 million of net debt repayments in the same period a year ago.Sodiaal International (Sodiaal) made an additional investment of$56 million in our Yoplait SAS subsidiary during the nine-month period endedFebruary 24, 2019 . We paid$895 million of dividends in the nine-month period endedFebruary 23, 2020 , compared to$884 million in the same period last year. Additionally, we paid$70 million in distributions to noncontrolling and redeemable interest holders in the nine-month period endedFebruary 23, 2020 , compared to$34 million in the same period last year. As ofFebruary 23, 2020 , we had$572 million of cash and cash equivalents held in foreign jurisdictions. As a result of the Tax Cuts and Jobs Act (TCJA), the historic undistributed earnings of our foreign subsidiaries were taxed in theU.S. via the one-time repatriation tax in fiscal 2018. We have re-evaluated our permanent reinvestment assertion and have concluded that although earnings prior to fiscal 2018 will remain permanently reinvested, we will no longer make a permanent reinvestment assertion beginning with our fiscal 2018 earnings. We record local country withholding taxes on our international earnings, as applicable. As a result of the transition tax, we may repatriate our cash and cash equivalents held by our foreign subsidiaries without such funds being subject to furtherU.S. income tax liability. 34 --------------------------------------------------------------------------------
CAPITAL RESOURCES
Our capital structure was as follows:
In Millions Feb. 23, 2020 May 26, 2019 Notes payable$ 1,174.6 $ 1,468.7 Current portion of long-term debt 863.7 1,396.5 Long-term debt 11,589.6 11,624.8 Total debt 13,627.9 14,490.0 Redeemable interest 538.6 551.7 Noncontrolling interests 285.0 313.2 Stockholders' equity 7,575.1 7,054.5 Total capital$ 22,026.6 $ 22,409.4
The following table details the fee-paid committed and uncommitted credit lines
we had available as of
Facility Borrowed
In Billions Amount Amount
Credit facility expiring:
May 2022 $ 2.7 $ -
September 2022 0.2 0.1
Total committed credit facilities 2.9 0.1
Uncommitted credit facilities 0.7 0.2
Total committed and uncommitted credit facilities
We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl. Sodiaal holds the remaining interests in each of these entities. We consolidate these entities into our consolidated financial statements. We record Sodiaal's 50 percent interests 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. 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 ofFebruary 23, 2020 , the redemption value of the redeemable interest was$539 million , which approximates its fair value.
During the second quarter of fiscal 2019, Sodiaal made an additional investment
of
The third-party holder of theGeneral 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 ). OnJune 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. To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding notes payable. Commercial paper is a continuing source of short-term financing. We have commercial paper programs available to us inthe United States andEurope . 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
In the third quarter of fiscal 2020, we issued €600 million of 0.45 percent fixed-rate notes dueJanuary 15, 2026 and €200 million of 0.0 fixed-rate notes dueNovember 16, 2020 . We used the net proceeds, together with cash on hand, to repay €500 million of floating rate notes and €300 million of 0.0 percent fixed-rate notes. 35
-------------------------------------------------------------------------------- We have$864 million of long-term debt maturing in the next 12 months that is classified as current, including$100 million of 6.61 percent fixed-rate 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 and$4 million of floating-rate medium term notes due for remarketing inNovember 2020 . We believe that cash flows from operations, together with available short- and long-term debt financing, will be adequate to meet our liquidity and capital needs for at least the next 12 months.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There were no material changes outside the ordinary course of our business in our contractual obligations or off-balance sheet arrangements during the third quarter of fiscal 2020.
SIGNIFICANT ACCOUNTING ESTIMATES
Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year endedMay 26, 2019 . The accounting policies used in preparing our interim fiscal 2020 Consolidated Financial Statements are the same as those described in our Form 10-K with the exception of new accounting requirements adopted in the first quarter of fiscal 2020 related to hedge accounting and the accounting, presentation, and classification of leases. Please see Note 1 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information. Our significant accounting estimates are those that have meaningful impact on the reporting of our financial condition and results of operations. These estimates include our accounting for promotional expenditures, valuation of long-lived assets, intangible assets, redeemable interest, stock-based compensation, income taxes, and defined benefit pension, other postretirement benefit, and postemployment benefit plans. The assumptions and methodologies used in the determination of those estimates as ofFebruary 23, 2020 , are the same as those described in our Annual Report on Form 10-K for the fiscal year endedMay 26, 2019 . Our annual goodwill and indefinite-lived intangible assets impairment test was performed on the first day of the second quarter of fiscal 2020, and we determined there was no impairment of our intangible assets as their related fair values were substantially in excess of the carrying values, except for theEurope &Australia reporting unit and the Progresso brand intangible asset.
The excess fair value as of the fiscal 2020 test date of the
Carrying
Value of Excess Fair Value as
Intangible of Fiscal 2020 Test
In Millions Asset Date
Europe & Australia $ 672.6 14%
Progresso $ 330.0 5%
In addition, while having significant coverage as of our fiscal 2020 assessment
date, the Pillsbury brand intangible asset had risk of decreasing coverage. We
will continue to monitor these businesses for potential impairment.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
InDecember 2019 , theFinancial Accounting Standards Board (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 are in the process of analyzing the impact of this standard on our results of operations and financial position. 36 --------------------------------------------------------------------------------
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.
37
--------------------------------------------------------------------------------
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 basis.
Our adjusted operating profit margins are calculated as follows:
Quarter Ended
Feb. 23, 2020 Feb. 24, 2019
Percent of Percent of
In Millions Value Net Sales Value Net Sales
Operating profit as reported $ 650.8 15.6 % $ 651.3 15.5 %
Mark-to-market effects (a) 8.6 0.2 % (6.5) (0.1) %
Restructuring charges (b) 12.4 0.3 % 58.6 1.4 %
Project-related costs (b) 0.4 - % 0.1 - %
Asset impairments (b) - - % 1.2 - %
Investment activity, net (c) 3.0 0.1 % - - %
Acquisition integration costs (d) - - % 5.8 0.1 %
Divestiture loss (e) - - % 35.4 0.9 %
Legal recovery (f) - - % (16.2) (0.4) %
Adjusted operating profit $ 675.1 16.1 % $ 729.7 17.4 %
Nine-Month Period Ended
Feb. 23, 2020 Feb. 24, 2019
Percent of Percent of
In Millions Value Net Sales Value Net Sales
Operating profit as reported $ 2,124.4 16.9 % $ 1,799.8 14.2 %
Mark-to-market effects (a) 1.0 - % 36.4 0.3 %
Restructuring charges (b) 37.2 0.3 % 61.0 0.5 %
Project-related costs (b) 1.1 - % 1.3 - %
Asset impairments (b) - - % 207.0 1.6 %
Investment activity, net (c) 6.7 0.1 % (13.0) (0.1) %
Acquisition integration costs (d) - - % 21.3 0.1 %
Divestiture loss (e) - - % 35.4 0.3 %
Legal recovery (f) - - % (16.2) (0.1) %
Hyperinflationary accounting (g) - - % 3.2 - %
Adjusted operating profit $ 2,170.3 17.2 % $ 2,136.2 16.8 %
Note: Tables may not foot due to rounding.
(a)See Note 7 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(b)See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(c)Valuation adjustments and the loss on sale of certain corporate investments.
(d)Integration costs resulting from the acquisition of Blue Buffalo in fiscal 2018.
(e)See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(f)Represents a legal recovery related to our Yoplait SAS subsidiary.
(g)Represents the impact of hyperinflationary accounting for our
38
--------------------------------------------------------------------------------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.
Our adjusted operating profit growth on a constant-currency basis is calculated
as follows:
Quarter Ended Nine-Month Period Ended
Feb. 23, Feb. 24, Feb. 23, Feb. 24,
2020 2019 Change 2020 2019 Change
Operating profit as
reported $ 650.8 $ 651.3 Flat $ 2,124.4 $ 1,799.8 18 %
Mark-to-market effects
(a) 8.6 (6.5) 1.0 36.4
Restructuring charges
(b) 12.4 58.6 37.2 61.0
Project-related costs
(b) 0.4 0.1 1.1 1.3
Asset impairments (b) - 1.2 - 207.0
Investment activity, net
(c) 3.0 - 6.7 (13.0)
Acquisition integration
costs (d) - 5.8 - 21.3
Divestiture loss (e) - 35.4 - 35.4
Legal recovery (f) - (16.2) - (16.2)
Hyperinflationary
accounting (g) - - - 3.2
Adjusted operating
profit $ 675.1 $ 729.7 (7) % $ 2,170.3 $ 2,136.2 2 %
Foreign currency
exchange impact Flat Flat
Adjusted operating
profit growth,
on a constant-currency
basis (8) % 2 %
Note: Table may not foot due to rounding.
(a)See Note 7 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(b)See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(c)Valuation adjustments and the loss on sale of certain corporate investments.
(d)Integration costs resulting from the acquisition of Blue Buffalo in fiscal 2018.
(e)See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(f)Represents a legal recovery related to our Yoplait SAS subsidiary.
(g)Represents the impact of hyperinflationary accounting for our
39
--------------------------------------------------------------------------------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.
The reconciliation of our GAAP measure, diluted EPS, to adjusted diluted EPS and the related constant-currency growth rate follows:
Nine-Month
Quarter Ended Period Ended
Feb. Feb. Feb. Feb.
23, 24, 23, 24,
Per Share Data 2020 2019 Change 2020 2019 Change
Diluted earnings per share,
as reported $ 0.74 $ 0.74 Flat $ 2.54 $ 1.96 30 %
Tax items (a) - (0.01) (0.09) (0.01)
Mark-to-market effects (b) 0.01 (0.01) -
0.05
Restructuring charges (c) 0.02 0.08 0.05
0.08
Asset impairments (c) - - -
0.26
Investment activity, net (d) - - - (0.01) CPW restructuring charges (e) 0.01 - 0.01 0.01 Acquisition integration costs (f) - 0.01 - 0.03 Divestiture loss (g) - 0.03 - 0.03 Legal recovery (h) - (0.01) - (0.01) Adjusted diluted earnings per share$ 0.77 $ 0.83 (7) %$ 2.51 $ 2.39 5 % Foreign currency exchange impact (1) pt Flat Adjusted diluted earnings per share growth, on a constant-currency basis (6) %
5 %
Note: Table may not foot due to rounding.
(a)See Note 15 to the Consolidated Financial Statement in Part I, Item 1 of this report.
(b)See Note 7 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(c)See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(d)Valuation adjustments and the loss on sale of certain corporate investments.
(e)The CPW restructuring charges are related to initiatives designed to improve profitability and growth that were approved in fiscal 2018 and 2019.
(f)Integration costs resulting from the acquisition of Blue Buffalo in fiscal 2018.
(g)See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(h)Represents a legal recovery related to our Yoplait SAS subsidiary.
See our reconciliation below of the effective income tax rate as reported to the adjusted effective income tax rate for the tax impact of each item affecting comparability.
Constant-currency After-tax Earnings from Joint Ventures Growth Rates
We believe that this measure provides useful information to investors because it
provides transparency to underlying performance of our joint ventures by
excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year comparability given volatility in foreign currency exchange
markets.
After-tax earnings from joint ventures growth rate on a constant-currency basis
is calculated as follows:
Percentage Change in
After-Tax Earnings from Impact of Foreign Percentage Change in After-Tax
Joint Currency Earnings from Joint Ventures
Ventures as Reported Exchange on Constant-Currency Basis
Quarter Ended Feb. 23,
2020 (8) % (3) pts (5) %
Nine-Month Period Ended
Feb. 23, 2020 11 % (1) pt 11 %
Note: Table may not foot
due to rounding.
Net Sales Growth Rates for Our Canada Operating Unit on Constant-currency Basis
We believe that 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 ourNorth America Retail segment by excluding the 40 --------------------------------------------------------------------------------
effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets.
Net sales growth rates for our
Percentage Change in
Percentage Change in Impact of Foreign Net Sales on
Net Sales Currency Constant-
as Reported Exchange Currency Basis
Quarter Ended Feb. 23, 2020 6 % 1 pt 5 %
Nine-Month Period Ended Feb.
23, 2020 1 % Flat 2 %
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:
Quarter Ended Feb. 23, 2020
Percentage Change in Impact of Foreign Percentage Change in Operating
Operating Profit Currency Profit on Constant-Currency
as Reported Exchange Basis
North America Retail (9) % Flat (9) %
Europe & Australia (9) % 1 pt (11) %
Asia & Latin America (58) % 5 pts (64) %
Nine-Month Period Ended Feb. 23, 2020
Percentage Change in Impact of Foreign Percentage Change in Operating
Operating Profit Currency Profit on Constant-Currency
as Reported Exchange Basis
North America Retail (1) % Flat (1) %
Europe & Australia Flat (3) pts 3 %
Asia & Latin America (14) % (1) pt (13) %
Note: Tables may not foot due to rounding.
41
--------------------------------------------------------------------------------Adjusted Effective Income Tax Rate
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.
Adjusted effective income tax rates are calculated as follows:
Quarter Ended Nine-Month Period Ended
Feb. 23, 2020 Feb. 24, 2019 Feb. 23, 2020 Feb. 24, 2019
In Millions Pretax Pretax Pretax Pretax
(Except Per Share Earnings Income Earnings Income Earnings Income Earnings Income Data)
(a) Taxes (a) Taxes (a) Taxes (a) Taxes
As reported $ 571.3 $ 118.2 $ 541.9 $ 95.8 $ 1,867.2 $ 340.9 $ 1,466.1 $ 313.1
Tax items (b) - - - 7.2 - 53.1 - 7.2
Mark-to-market
effects (c) 8.6 1.9 (6.5) (1.5) 1.0 0.2 36.4 8.4
Restructuring
charges (d) 12.4 3.7 58.6 12.3 37.2 8.0 61.0 12.5
Project-related
costs (d) 0.4 0.1 0.1 - 1.1 0.2 1.3 0.3
Asset impairments
(d) - - 1.2 0.3 - - 207.0 47.7
Investment activity,
net (e) 3.0 0.7 - - 6.7 5.1 (13.0) (3.0)
Acquisition
integration costs
(f) - - 5.8 1.3 - - 21.3 4.9
Divestiture loss (g) - - 35.4 13.6 - - 35.4 13.6
Legal recovery (h) - - (16.2) (5.4) - - (16.2) (5.4)
Hyperinflationary
accounting (i) - - - - - - 3.2 -
As adjusted $ 595.6 $ 124.8 $ 620.3 $ 123.6 $ 1,913.1 $ 407.6 $ 1,802.5 $ 399.3
Effective tax rate:
As reported 20.7% 17.7% 18.3% 21.4%
As adjusted 21.0% 19.9% 21.3% 22.2%
Sum of adjustment to
income taxes $ 6.4 $ 27.8 $ 66.6 $ 86.2
Average number of
common shares -
diluted EPS 612.8 604.5 612.1 604.0
Impact of income tax
adjustments
on adjusted diluted
EPS $ 0.01 $ 0.04 $ 0.11 $ 0.14 Note: Table may not foot due to rounding.
(a)Earnings before income taxes and after-tax earnings from joint ventures.
(b)See Note 15 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(c)See Note 7 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(d)See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(e)Valuation adjustments and the loss on sale of certain corporate investments.
(f)Integration costs resulting from the acquisition of Blue Buffalo in fiscal 2018.
(g)See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
(h)Represents a legal recovery related to our Yoplait SAS subsidiary.
(i)Represents the impact of hyperinflationary accounting for our
Glossary Accelerated depreciation associated with restructured assets. The increase in depreciation expense caused by updating the salvage value and shortening the useful life of depreciable fixed assets to coincide with the end of production under an approved restructuring plan, but only if impairment is not present.
AOCI. Accumulated other comprehensive income (loss).
Adjusted diluted EPS. Diluted EPS adjusted for certain items affecting year-to-year comparability.
Adjusted operating profit. Operating profit adjusted for certain items affecting year-to-year comparability.
Adjusted operating profit margin. Operating profit adjusted for certain items affecting year-over-year comparability, divided by net sales.
Constant currency. Financial results translated toUnited States dollars using constant foreign currency exchange rates based on the rates in effect for the comparable prior-year period. To present this information, current period results for entities reporting in currencies other thanUnited States dollars are translated intoUnited States dollars at the average exchange rates in effect during the corresponding period of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year. Therefore, the foreign currency impact is equal to current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.
Core working capital. Accounts receivable plus inventories less accounts payable.
42
--------------------------------------------------------------------------------Derivatives. Financial instruments such as futures, swaps, options, and forward contracts that we use to manage our risk arising from changes in commodity prices, interest rates, foreign exchange rates, and stock prices.
Euribor. Euro Interbank Offered Rate.
Fair value hierarchy. For purposes of fair value measurement, we categorize assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1:Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3:Unobservable inputs reflecting management's assumptions about the inputs used in pricing the asset or liability.
Focus 6 platforms. The Focus 6 platforms for the Convenience Stores & Foodservice segment consist of cereal, yogurt, snacks, frozen meals, frozen biscuits, and frozen baked goods.
Free cash flow. Net cash provided by operating activities less purchases of land, buildings, and equipment.
Free cash flow conversion rate. Free cash flow divided by our net earnings, including earnings attributable to redeemable and noncontrolling interests adjusted for certain items affecting year-to-year comparability.
Generally Accepted Accounting Principles (GAAP). Guidelines, procedures, and practices that we are required to use in recording and reporting accounting information in our financial statements.
Goodwill . The difference between the purchase price of acquired companies plus the fair value of any noncontrolling and redeemable interests and the related fair values of net assets acquired.
Gross margin. Net sales less cost of sales.
Hedge accounting. Accounting for qualifying hedges that allows changes in a hedging instrument's fair value to offset corresponding changes in the hedged item in the same reporting period. Hedge accounting is permitted for certain hedging instruments and hedged items only if the hedging relationship is highly effective, and only prospectively from the date a hedging relationship is formally documented. Holistic Margin Management (HMM). Company-wide initiative to use productivity savings, mix management, and price realization to offset input cost inflation, protect margins, and generate funds to reinvest in sales-generating activities. Interest bearing instruments. Notes payable, long-term debt, including current portion, cash and cash equivalents, and certain interest bearing investments classified within prepaid expenses and other current assets and other assets.
LIBOR. London Interbank Offered Rate.
Mark-to-market. The act of determining a value for financial instruments, commodity contracts, and related assets or liabilities based on the current market price for that item.
Net mark-to-market valuation of certain commodity positions. Realized and unrealized gains and losses on derivative contracts that will be allocated to segment operating profit when the exposure we are hedging affects earnings.
Net price realization. The impact of list and promoted price changes, net of trade and other price promotion costs.
Net realizable value. The estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Noncontrolling interests. Interests of subsidiaries held by third parties.
Notional amount. The amount of a position or an agreed upon amount in a derivative contract on which the value of financial instruments are calculated.
43
--------------------------------------------------------------------------------OCI. Other Comprehensive Income.
Organic net sales growth. Net sales growth adjusted for foreign currency translation, as well as acquisitions, divestitures and a 53rd week impact, when applicable.
Project-related costs. Costs incurred related to our restructuring initiatives not included in restructuring charges.
Redeemable interest. Interest of subsidiaries held by a third party that can be redeemed outside of our control and therefore cannot be classified as a noncontrolling interest in equity.
Reporting unit. An operating segment or a business one level below an operating segment.
Strategic Revenue Management (SRM). A company-wide capability focused on generating sustainable benefits from net price realization and mix by identifying and executing against specific opportunities to apply tools including pricing, sizing, mix management, and promotion optimization across each of our businesses.
Supply chain input costs. Costs incurred to produce and deliver product, including costs for ingredients and conversion, inventory management, logistics, and warehousing.
TCJA.
Translation adjustments. The impact of the conversion of our foreign affiliates' financial statements toUnited States dollars for the purpose of consolidating our financial statements. Variable interest entities (VIEs). A legal structure that is used for business purposes that either (1) does not have equity investors that have voting rights and share in all the entity's profits and losses or (2) has equity investors that do not provide sufficient financial resources to support the entity's activities.
Working capital. Current assets and current liabilities, all as of the last day of our fiscal year.
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 theSecurities and Exchange Commission and in our reports to stockholders. The words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "plan," "project," or similar expressions identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those currently anticipated or projected. We wish to caution you not to place undue reliance on any such forward-looking statements. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that could affect our financial performance and could cause our actual results in future periods to differ materially from any current opinions or statements. Our future results could be affected by a variety of factors, such as: the impact of the COVID-19 outbreak on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of the COVID-19 outbreak; competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets, including our acquisition of Blue Buffalo and issues in the integration of Blue Buffalo and retention of key management and employees; unfavorable reaction to our acquisition of Blue Buffalo by customers, competitors, suppliers, and employees; changes in capital structure; changes in the legal and regulatory environment, including tax 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, 44
--------------------------------------------------------------------------------
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 Part I of our Annual Report on Form 10-K for the fiscal year endedMay 26, 2019 , 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.
© Edgar Online, source
