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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED May 30, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
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Commission file number: 001-01185
GENERAL MILLS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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41-0274440 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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Number One General Mills Boulevard
Minneapolis, Minnesota
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55426 (Zip Code) |
(Address of principal executive offices)
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(763) 764-7600
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange |
Title of each class |
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on which registered |
Common Stock, $.10 par value
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer
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Accelerated filer |
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Non-accelerated filer
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(Do not check if a smaller reporting company) |
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Smaller reporting company |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).
Yes o No x
Aggregate market value of Common Stock held by non-affiliates of the registrant, based on the
closing price of $34.05 per share as reported on the New York Stock Exchange on November 27, 2009
(the last business day of the registrants most recently completed second fiscal quarter):
$22,384.1 million.
Number of shares of Common Stock outstanding as of June 18, 2010: 651,216,065 (excluding
103,397,263 shares held in the treasury).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement for its 2010 Annual Meeting of Stockholders are
incorporated by reference into Part III.
PART I
COMPANY OVERVIEW
General Mills, Inc. is a leading global manufacturer and marketer of branded consumer foods sold
through retail stores. We are also a leading supplier of branded and unbranded food products to the
foodservice and commercial baking industries. We manufacture our products in 15 countries and
market them in more than 100 countries. Our joint ventures manufacture and market products in more
than 130 countries and republics worldwide.
General Mills, Inc. was incorporated in Delaware in 1928. The terms General Mills, Company,
registrant, we, us, and our mean General Mills, Inc. and all subsidiaries included in the
Consolidated Financial Statements in Item 8 of this report unless the context indicates otherwise.
Certain terms used throughout this report are defined in a glossary in Item 8 of this report.
PRINCIPAL PRODUCTS
Our major product categories in the United States are ready-to-eat cereals, refrigerated yogurt,
ready-to-serve soup, dry dinners, shelf stable and frozen vegetables, refrigerated and frozen dough
products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks,
and a wide variety of organic products including soup, granola bars, and cereal.
In Canada, our major product categories are ready-to-eat cereals, shelf stable and frozen
vegetables, dry dinners, refrigerated and frozen dough products, dessert and baking mixes, frozen
pizza snacks, and grain, fruit and savory snacks.
In markets outside the United States and Canada, our major product categories include super-premium
ice cream and frozen desserts, grain snacks, shelf stable and frozen vegetables, refrigerated and
frozen dough products, and dry dinners. In addition, we sell ready-to-eat cereals through our
Cereal Partners Worldwide (CPW) joint venture.
TRADEMARKS AND PATENTS
Our products are marketed under trademarks and service marks that are owned by or licensed to us.
The most significant trademarks and service marks used in our businesses are set forth in italics
in this report. Some of the important trademarks used in our global operations include:
Ready-to-eat cereals
Cheerios, Wheaties, Lucky Charms, Total, Trix, Golden Grahams, Chex, Kix, Fiber One, Reeses Puffs,
Cocoa Puffs, Cookie Crisp, Cinnamon Toast Crunch, Clusters, Oatmeal Crisp, and Basic 4
Refrigerated yogurt
Yoplait, Trix, Yoplait Kids, Go-GURT, Fiber One, YoPlus, and Whips!
Refrigerated and frozen dough products
Pillsbury, the Pillsbury Doughboy character, Grands!, Golden Layers, Big Deluxe, Toaster Strudel,
Toaster Scrambles, Simply, Savorings, Jus-Rol, Latina, Wanchai Ferry, V.Pearl, and La Salteña
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Dry dinners and shelf stable and frozen vegetable products
Betty Crocker, Hamburger Helper, Tuna Helper, Chicken Helper, Old El Paso, Green Giant, Potato
Buds, Suddenly Salad, Bac*Os, Betty Crocker Complete Meals, Valley Selections, Simply Steam,
Valley Fresh Steamers, Wanchai Ferry, and Diablitos
Grain, fruit, and savory snacks
Nature Valley, Fiber One, Betty Crocker, Fruit Roll-Ups, Fruit By The Foot, Gushers, Stickerz, Chex
Mix, Gardettos, Bugles, and Lärabar
Dessert and baking mixes
Betty Crocker, SuperMoist, Warm Delights, Bisquick, and Gold Medal
Ready-to-serve soup
Progresso
Ice cream and frozen desserts
Häagen-Dazs
Frozen pizza and pizza snacks
Totinos, Jenos, Pizza Rolls, Party Pizza, Pillsbury Pizza Pops, and Pillsbury Pizza Minis
Organic products
Cascadian Farm and Muir Glen
Trademarks are vital to our businesses. To protect our ownership and rights, we register our
trademarks with the Patent and Trademark Office in the United States, and we file similar
registrations in foreign jurisdictions. Trademark registrations in the United States are generally
for a term of 10 years, renewable every 10 years as long as the trademark is used in the regular
course of business.
Some of our products are marketed under or in combination with trademarks that have been licensed
from others, including:
Yoplait, Yoplait Kids, Go-GURT, YoPlus, and Whips! for yogurt in the United States;
Dora the Explorer, Blues Clues, Diego, Backyardigans, Wonder Pets, and iCarly for yogurt,
and Dora the Explorer for cereal;
Reeses Puffs and Clifford the Big Red Dog for cereal;
Hersheys chocolate for a variety of products;
Weight Watchers as an endorsement for soup and frozen vegetable products;
Macaroni Grill for dry and frozen dinners;
Good Earth for dry dinners;
Sunkist for baking products and fruit snacks;
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Cinnabon for refrigerated dough, frozen pastries, and baking products;
Baileys for super-premium ice cream; and
a variety of characters and brands for fruit snacks, including Tonka, My Little Pony,
Transformers, Care Bears, Teenage Mutant Ninja Turtles, Spider-Man, and various Warner Bros.
and Nickelodeon characters.
We license all of our cereal trademarks to CPW, our joint venture with Nestlé S.A. (Nestlé). Nestlé
similarly licenses certain of its trademarks to CPW, including the Nestlé and Uncle Tobys
trademarks. We own the Häagen-Dazs trademark and have the right to use the trademark outside of the
United States and Canada. Nestlé has an exclusive royalty-free license to use the Häagen-Dazs
trademark in the United States and Canada on ice cream and other frozen dessert products. We also
license this trademark to our Häagen-Dazs Japan, Inc. (HDJ) joint venture. The J. M. Smucker
Company holds an exclusive royalty-free license to use the Pillsbury brand and the Pillsbury
Doughboy character in the dessert mix and baking mix categories in the United States and under
limited circumstances in Canada and Mexico. We also license our Green Giant trademark to a third
party for use in connection with its sale of fresh produce in the United States.
Given our focus on developing and marketing innovative, proprietary products, we consider the
collective rights under our various patents, which expire from time to time, a valuable asset, but
we do not believe that our businesses are materially dependent upon any single patent or group of
related patents.
RAW MATERIALS AND SUPPLIES
The principal raw materials that we use are grains (wheat, oats, and corn), sugar, dairy products,
vegetables, fruits, meats, vegetable oils, and other agricultural products. We also use substantial
quantities of carton board, corrugated, plastic and metal packaging materials, operating supplies,
and energy. Most of these inputs for our domestic and Canadian operations are purchased from
suppliers in the United States. In our international operations, inputs that are not locally
available in adequate supply may be imported from other countries. The cost of these inputs may
fluctuate widely due to government policy and regulation, weather conditions, or other unforeseen
circumstances. We have some long-term fixed price contracts, but the majority of our inputs are
purchased on the open market. We believe that we will be able to obtain an adequate supply of
needed inputs. Occasionally and where possible, we make advance purchases of items significant to
our business in order to ensure continuity of operations. Our objective is to procure materials
meeting both our quality standards and our production needs at price levels that allow a targeted
profit margin. Since these inputs generally represent the largest variable cost in manufacturing
our products, to the extent possible, we often manage the risk associated with adverse price
movements for some inputs using a variety of risk management strategies. We also have a grain
merchandising operation that provides us efficient access to, and more informed knowledge of,
various commodity markets, principally wheat and oats. This operation holds physical inventories
that are carried at fair market value and uses derivatives to hedge its net inventory position and
minimize its market exposures.
RESEARCH AND DEVELOPMENT
Our principal research and development facilities are located in Minneapolis, Minnesota. Our
research and development resources are focused on new product development, product improvement,
process design and improvement, packaging, and exploratory research in new business and technology
areas. Research and development expenditures were $218 million in fiscal 2010, $208 million in
fiscal 2009, and $205 million in fiscal 2008.
FINANCIAL INFORMATION ABOUT SEGMENTS
We review the financial results of our business under three operating segments: U.S. Retail;
International; and Bakeries and Foodservice. See Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) in Item 7 of this report for a description of our
segments. For financial information by segment and geographic area, see Note 16 to the Consolidated
Financial Statements in Item 8 of this report.
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JOINT VENTURES
In addition to our consolidated operations, we participate in two joint ventures: CPW and HDJ. See
MD&A in Item 7 of this report for a description of our joint ventures.
CUSTOMERS
Our primary customers are grocery stores, mass merchandisers, membership stores, natural food
chains, drug, dollar and discount chains, commercial and noncommercial foodservice distributors and
operators, restaurants, and convenience stores. We generally sell to these customers through our
direct sales force. We use broker and distribution arrangements for certain products or to serve
certain types of customers.
During fiscal 2010, Wal-Mart Stores, Inc. and its affiliates (Wal-Mart) accounted for 23 percent of
our consolidated net sales and 30 percent of our net sales in the U.S. Retail segment. No other
customer accounted for 10 percent or more of our consolidated net sales. Wal-Mart also represented
5 percent of our net sales in the International segment and 7 percent of our net sales in the
Bakeries and Foodservice segment. As of May 30, 2010, Wal-Mart accounted for 28 percent of our U.S.
Retail receivables, 4 percent of our International receivables, and 7 percent of our Bakeries and
Foodservice receivables. The five largest customers in our U.S. Retail segment accounted for 54
percent of its fiscal 2010 net sales, the five largest customers in our International segment
accounted for 23 percent of its fiscal 2010 net sales, and the five largest customers in our
Bakeries and Foodservice segment accounted for 45 percent of its fiscal 2010 net sales.
For further information on our customer credit and product return practices please refer to Note 2
to the Consolidated Financial Statements in Item 8 of this report.
COMPETITION
The consumer foods industry is highly competitive, with numerous manufacturers of varying sizes in
the United States and throughout the world. The food categories in which we participate are very
competitive. Our principal competitors in these categories all have substantial financial,
marketing, and other resources. Competition in our product categories is based on product
innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing,
promotional activity, and the ability to identify and satisfy consumer preferences. Our principal
strategies for competing in each of our segments include effective customer relationships, superior
product quality, innovative advertising, product promotion, product innovation, an efficient supply
chain, and price. In most product categories, we compete not only with other widely advertised
branded products, but also with generic and private label products that are generally sold at lower
prices. Internationally, we compete with both multi-national and local manufacturers, and each
country includes a unique group of competitors.
SEASONALITY
In general, demand for our products is evenly balanced throughout the year. However, within our
U.S. Retail segment demand for refrigerated dough, frozen baked goods, and baking products is
stronger in the fourth calendar quarter. Demand for Progresso soup and Green Giant canned and
frozen vegetables is higher during the fall and winter months. Internationally, demand for
Häagen-Dazs ice cream is higher during the summer months and demand for baking mix and dough
products increases during winter months. Due to the offsetting impact of these demand trends, as
well as the different seasons in the northern and southern hemispheres, our International segment
net sales are generally evenly balanced throughout the year.
BACKLOG
Orders are generally filled within a few days of receipt and are subject to cancellation at any
time prior to shipment. The backlog of any unfilled orders as of May 30, 2010, was not material.
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WORKING CAPITAL
A description of our working capital is included in the Liquidity section of MD&A in Item 7 of this
report. Our product return practices are described in Note 2 to the Consolidated Financial
Statements in Item 8 of this report.
EMPLOYEES
As of May 30, 2010, we had approximately 33,000 full- and part-time employees.
FOOD QUALITY AND SAFETY REGULATION
The manufacture and sale of consumer food products is highly regulated. In the United States, our
activities are subject to regulation by various federal government agencies, including the Food and
Drug Administration, Department of Agriculture, Federal Trade Commission, Department of Commerce,
and Environmental Protection Agency, as well as various state and local agencies. Our business is
also regulated by similar agencies outside of the United States.
ENVIRONMENTAL MATTERS
As of May 30, 2010, we were involved with three active cleanup sites associated with the alleged or
threatened release of hazardous substances or wastes located in: Sauget, Illinois; Minneapolis,
Minnesota; and Moonachie, New Jersey. These matters involve several different actions, including
administrative proceedings commenced by regulatory agencies and demand letters by regulatory
agencies and private parties.
We recognize that our potential exposure with respect to any of these sites may be joint and
several, but have concluded that our probable aggregate exposure is not material to our
consolidated financial position or cash flows from operations. This conclusion is based upon, among
other things: our payments and accruals with respect to each site; the number, ranking and
financial strength of other potentially responsible parties; the status of the proceedings,
including various settlement agreements, consent decrees, or court orders; allocations of
volumetric waste contributions and allocations of relative responsibility among potentially
responsible parties developed by regulatory agencies and by private parties; remediation cost
estimates prepared by governmental authorities or private technical consultants; and our historical
experience in negotiating and settling disputes with respect to similar sites.
Our operations are subject to the Clean Air Act, Clean Water Act, Resource Conservation and
Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act, and the
Federal Insecticide, Fungicide, and Rodenticide Act, and all similar state, local, and foreign
environmental laws and regulations applicable to the jurisdictions in which we operate.
Based on current facts and circumstances, we believe that neither the results of our environmental
proceedings nor our compliance in general with environmental laws or regulations will have a
material adverse effect upon our capital expenditures, earnings, or competitive position.
EXECUTIVE OFFICERS
The section below provides information regarding our executive officers as of July 9, 2010:
Y. Marc Belton, age 51, is Executive Vice President, Worldwide Health, Brand and New Business
Development. Mr. Belton joined General Mills in 1983 and has held various positions, including
President of Snacks Unlimited from 1994 to 1997, New Ventures from 1997 to 1999, and Big G cereals
from 1999 to 2002. He had oversight responsibility for Yoplait, General Mills Canada, and New
Business Development from 2002 to May 2005, and has had oversight responsibility for Worldwide
Health, Brand and New Business Development since May 2005. Mr. Belton was elected a Vice President
of General Mills in 1991, a Senior Vice President in 1994, and an Executive Vice President in June
2006. He is a director of U.S. Bancorp.
John R. Church, age 44, is Senior Vice President, Supply Chain. Mr. Church joined General Mills in
1988 as a Product Developer in the Big G cereals division and held various positions before
becoming Vice President,
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Engineering in 2003. In October 2005, his role was expanded to include development of the companys
strategy for the global sourcing of raw materials and manufacturing capabilities. He was named Vice
President, Supply Chain Operations in March 2007 and to his present position in April 2008.
Michael L. Davis, age 54, is Senior Vice President, Global Human Resources. Mr. Davis joined
General Mills in 1996 as Vice President, Compensation and Benefits, after spending 15 years in
consulting with Towers Perrin. In 2002, his role was expanded to include staffing activities, and
in August 2005, he became Vice President, Human Resources for the U.S. Retail and Corporate groups.
He was named to his current position in January 2008.
Peter C. Erickson, age 49, is Senior Vice President, Innovation, Technology and Quality. Mr.
Erickson joined General Mills in 1994 as part of the Colombo Yogurt acquisition. He has held
various positions in Research & Development and became Vice President, Innovation, Technology and
Quality in March 2003. He was named to his present position in November 2006.
Ian R. Friendly, age 49, is Executive Vice President and Chief Operating Officer, U.S. Retail. Mr.
Friendly joined General Mills in 1983 and held various positions before becoming Vice President of
CPW in 1994, President of Yoplait in 1998, Senior Vice President of General Mills in 2000, and
President of the Big G cereals division in 2002. In May 2004, he was named Chief Executive Officer
of CPW. Mr. Friendly was named to his present position in June 2006. He is a director of The
Valspar Corporation.
Richard O. Lund, age 60, is Vice President, Controller. Mr. Lund joined General Mills in 1981 and
held various positions before becoming Vice President, Director of Financial Operations for the
Gold Medal division in 1994. He was appointed Vice President, Corporate Financial Operations in
2000 and was elected to his present position in December 2007. Prior to joining General Mills, Mr.
Lund spent 9 years with Coopers & Lybrand (now PricewaterhouseCoopers LLP).
Donal L. Mulligan, age 49, is Executive Vice President, Chief Financial Officer. Mr. Mulligan
joined General Mills in 2001 from The Pillsbury Company. He served as Vice President, Financial
Operations for our International division until 2004, when he was named Vice President, Financial
Operations for Operations and Technology. Mr. Mulligan was appointed Treasurer of General Mills in
January 2006, Senior Vice President, Financial Operations in July 2007, and was elected to his
present position in August 2007. From 1987 to 1998, he held several international positions at
PepsiCo, Inc. and YUM! Brands, Inc. Mr. Mulligan is a director of Tennant Company.
Shawn P. OGrady, age 46, is Senior Vice President, President, Consumer Foods Sales Division. Mr.
OGrady joined General Mills in 1990 and held several marketing roles in the Snacks, Meals and Big
G divisions. He was promoted to Vice President in 1998 and held marketing positions in the Betty
Crocker and Pillsbury USA divisions. In December 2004, he moved into Consumer Foods Sales, becoming
Vice President, President, U.S. Retail Sales in June 2007. He was promoted to his current position
in May 2010.
Christopher D. OLeary, age 51, is Executive Vice President and Chief Operating Officer,
International. Mr. OLeary joined General Mills in 1997 as Vice President, Corporate Growth. He was
elected a Senior Vice President in 1999 and President of the Meals division in 2001. Mr. OLeary
was named to his present position in June 2006. Prior to joining General Mills, he spent 17 years
at PepsiCo, Inc., last serving as President and Chief Executive Officer of the Hostess Frito-Lay
business in Canada. Mr. OLeary is a director of Telephone and Data Systems, Inc.
Roderick A. Palmore, age 58, is Executive Vice President, General Counsel, Chief Compliance and
Risk Management Officer and Secretary. Mr. Palmore joined General Mills in this position in
February 2008 from the Sara Lee Corporation. He spent 12 years at Sara Lee, a consumer foods and
products company, last serving as Executive Vice President and General Counsel.
Kendall J. Powell, age 56, is Chairman of the Board and Chief Executive Officer of General Mills.
Mr. Powell joined General Mills in 1979 and served in a variety of positions before becoming a Vice
President in 1990. He became President of Yoplait in 1996, President of the Big G cereal division
in 1997, and Senior Vice President of General Mills in 1998. From 1999 to 2004, he served as Chief
Executive Officer of CPW. He returned from CPW in 2004 and was elected Executive Vice President.
Mr. Powell was elected President and Chief Operating Officer of
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General Mills with overall global operating responsibility for the company in June 2006, Chief
Executive Officer in September 2007 and Chairman of the Board in May 2008. He is a director of
Medtronic, Inc.
Jeffrey J. Rotsch, age 59, is Executive Vice President, Worldwide Sales and Channel Development.
Mr. Rotsch joined General Mills in 1974 and served as the President of several divisions, including
Betty Crocker and Big G cereals. He served as Senior Vice President from 1993 to 2005 and as
President, Consumer Foods Sales from 1997 to 2005. Mr. Rotsch was named to his present position in
May 2005. Mr. Rotsch is retiring effective August 1, 2010.
Christina L. Shea, age 57, is Senior Vice President, External Relations and President, General
Mills Foundation. Ms. Shea joined General Mills in 1977 and has held various positions in the Big G
cereals, Yoplait, Gold Medal, Snacks, and Betty Crocker divisions. From 1994 to 1999, she was
President of the Betty Crocker division and was named a Senior Vice President of General Mills in
1998. Ms. Shea became President of General Mills Community Action and the General Mills Foundation
in 2002 and was named to her present position in May 2005.
WEBSITE ACCESS
Our website is www.generalmills.com. We make available, free of charge in the Investors portion
of this website, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
the 1934 Act as soon as reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. Reports of beneficial ownership filed pursuant to Section 16(a) of the 1934
Act are also available on our website.
Our business is subject to various risks and uncertainties. Any of the risks described below could
materially adversely affect our business, financial condition, and results of operations.
The food categories in which we participate are very competitive, and if we are not able to compete
effectively, our results of operations could be adversely affected.
The food categories in which we participate are very competitive. Our principal competitors in
these categories all have substantial financial, marketing, and other resources. In most product
categories, we compete not only with other widely advertised branded products, but also with
generic and private label products that are generally sold at lower prices. Competition in our
product categories is based on product innovation, product quality, price, brand recognition and
loyalty, effectiveness of marketing, promotional activity, and the ability to identify and satisfy
consumer preferences. If our large competitors were to decrease their pricing or were to increase
their promotional spending, we could choose to do the same, which could adversely affect our
margins and profitability. If we did not do the same, our revenues and market share could be
adversely affected. Our market share and revenue growth could also be adversely impacted if we are
not successful in introducing innovative products in response to changing consumer demands or by
new product introductions of our competitors. If we are unable to build and sustain brand equity by
offering recognizably superior product quality, we may be unable to maintain premium pricing over
generic and private label products.
We may be unable to maintain our profit margins in the face of a consolidating retail environment.
The five largest customers in our U.S. Retail segment accounted for 54 percent of its net sales for
fiscal 2010, the five largest customers in our International segment accounted for 23 percent of
its net sales for fiscal 2010, and the five largest customers in our Bakeries and Foodservice
segment accounted for 45 percent of its net sales for fiscal 2010. The loss of any large customer
for an extended length of time could adversely affect our sales and profits. In addition, large
retail customers may seek to use their position to improve their profitability through improved
efficiency, lower pricing, increased reliance on their own brand name products, increased emphasis
on generic and other economy brands, and increased promotional programs. If we are unable to use
our scale, marketing expertise, product innovation, knowledge of consumers needs, and category
leadership positions to respond to these demands, our profitability or volume growth could be
negatively impacted.
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Price changes for the commodities we depend on for raw materials, packaging, and energy may
adversely affect our profitability.
The principal raw materials that we use are commodities that experience price volatility caused by
external conditions such as weather and product scarcity, limited sources of supply, commodity
market fluctuations, currency fluctuations, and changes in governmental agricultural and energy
programs. Commodity price changes may result in unexpected increases in raw material, packaging,
and energy costs. If we are unable to increase productivity to offset these increased costs or
increase our prices, we may experience reduced margins and profitability. We do not fully hedge
against changes in commodity prices, and the risk management procedures that we do use may not
always work as we intend.
Volatility in the market value of derivatives we use to manage exposures to fluctuations in
commodity prices will cause volatility in our gross margins and net earnings.
We utilize derivatives to manage price risk for some of our principal ingredient and energy costs,
including grains (oats, wheat, and corn), oils (principally soybean), non-fat dry milk, natural
gas, and diesel fuel. Changes in the values of these derivatives are recorded in earnings
currently, resulting in volatility in both gross margin and net earnings. These gains and losses
are reported in cost of sales in our Consolidated Statements of Earnings and in unallocated
corporate items in our segment operating results until we utilize the underlying input in our
manufacturing process, at which time the gains and losses are reclassified to segment operating
profit. We also record our grain inventories at fair value. We may experience volatile earnings as
a result of these accounting treatments.
If we are not efficient in our production, our profitability could suffer as a result of the highly
competitive environment in which we operate.
Our future success and earnings growth depends in part on our ability to be efficient in the
production and manufacture of our products in highly competitive markets. Gaining additional
efficiencies may become more difficult over time. Our failure to reduce costs through productivity
gains or by eliminating redundant costs resulting from acquisitions could adversely affect our
profitability and weaken our competitive position. Many productivity initiatives involve complex
reorganization of manufacturing facilities and production lines. Such manufacturing realignment may
result in the interruption of production, which may negatively impact product volume and margins.
Disruption of our supply chain could adversely affect our business.
Our ability to make, move, and sell products is critical to our success. Damage or disruption to
raw material supplies or our manufacturing or distribution capabilities due to weather, including
any potential effects of climate change, natural disaster, fire, terrorism, pandemic, strikes,
import restrictions, or other factors could impair our ability to manufacture or sell our products.
Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to
effectively manage such events if they occur, particularly when a product is sourced from a single
supplier or location, could adversely affect our business and results of operations, as well as
require additional resources to restore our supply chain.
Concerns with the safety and quality of food products could cause consumers to avoid certain food
products or ingredients.
We could be adversely affected if consumers in our principal markets lose confidence in the safety
and quality of certain food products or ingredients. Adverse publicity about these types of
concerns, whether or not valid, may discourage consumers from buying our products or cause
production and delivery disruptions.
If our food products become adulterated, misbranded, or mislabeled, we might need to recall those
items and may experience product liability claims if consumers are injured.
We may need to recall some of our products if they become adulterated, misbranded, or mislabeled. A
widespread product recall could result in significant losses due to the costs of a recall, the
destruction of product inventory, and lost sales due to the unavailability of product for a period
of time. We could also suffer losses from a significant
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product liability judgment against us. A significant product recall or product liability case could
also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in
our food products, which could have an adverse effect on our business results and the value of our
brands.
We may be unable to anticipate changes in consumer preferences and trends, which may result in
decreased demand for our products.
Our success depends in part on our ability to anticipate the tastes and eating habits of consumers
and to offer products that appeal to their preferences. Consumer preferences change from time to
time and can be affected by a number of different trends. Our failure to anticipate, identify or
react to these changes and trends, or to introduce new and improved products on a timely basis,
could result in reduced demand for our products, which would in turn cause our revenues and
profitability to suffer. Similarly, demand for our products could be affected by consumer concerns
regarding the health effects of ingredients such as sodium, trans fats, sugar, processed wheat, or
other product ingredients or attributes.
We may be unable to grow our market share or add products that are in faster growing and more
profitable categories.
The food industrys growth potential is constrained by population growth. Our success depends in
part on our ability to grow our business faster than populations are growing in the markets that we
serve. One way to achieve that growth is to enhance our portfolio by adding innovative new products
in faster growing and more profitable categories. Our future results will also depend on our
ability to increase market share in our existing product categories. If we do not succeed in
developing innovative products for new and existing categories, our growth may slow, which could
adversely affect our profitability.
Customer demand for our products may be limited in future periods as a result of increased
purchases in response to promotional activity.
Our unit volume in the last week of each quarter can be higher than the average for the preceding
weeks of the quarter in certain circumstances. In comparison to the average daily shipments in the
first 12 weeks of a quarter, the final week of each quarter may have as much as four days worth of
incremental shipments (based on a five-day week), reflecting increased promotional activity at the
end of the quarter. This increased activity includes promotions to assure that our customers have
sufficient inventory on hand to support major marketing events or increased seasonal demand early
in the next quarter, as well as promotions intended to help achieve interim unit volume targets.
If, due to quarter-end promotions or other reasons, our customers purchase more product in any
reporting period than end-consumer demand will require in future periods, our sales level in future
reporting periods could be adversely affected.
Economic downturns could limit consumer demand for our products.
The willingness of consumers to purchase our products depends in part on local economic conditions.
In periods of economic uncertainty, consumers may purchase more generic, private label, and other
economy brands and may forego certain purchases altogether. In those circumstances, we could
experience a reduction in sales of higher margin products or a shift in our product mix to lower
margin offerings. In addition, as a result of economic conditions or competitive actions, we may be
unable to raise our prices sufficiently to protect margins. Consumers may also reduce the amount of
food that they consume away from home at customers that purchase products from our Bakeries and
Foodservice segment. Any of these events could have an adverse effect on our results of operations.
Our international operations are subject to political and economic risks.
In fiscal 2010, 18 percent of our consolidated net sales were generated outside of the United
States. We are accordingly subject to a number of risks relating to doing business internationally,
any of which could significantly harm our business. These risks include:
|
|
political and economic instability; |
11
|
|
exchange controls and currency exchange rates; |
|
|
|
foreign tax treaties and policies; and |
|
|
|
restriction on the transfer of funds to and from foreign countries, including potentially
negative tax consequences. |
Our financial performance on a U.S. dollar denominated basis is subject to fluctuations in currency
exchange rates. These fluctuations could cause material variations in our results of operations.
Our principal exposures are to the Australian dollar, British pound sterling, Canadian dollar,
Chinese renminbi, euro, Japanese yen, and Mexican peso. From time to time, we enter into agreements
that are intended to reduce the effects of our exposure to currency fluctuations, but these
agreements may not be effective in significantly reducing our exposure.
New regulations or regulatory-based claims could adversely affect our business.
Food production and marketing are highly regulated by a variety of federal, state, local, and
foreign agencies. Changes in laws or regulations that impose additional regulatory requirements on
us, including regulation of greenhouse gas emissions, could increase our cost of doing business or
restrict our actions, causing our results of operations to be adversely affected. In addition, we
advertise our products and could be the target of claims relating to alleged false or deceptive
advertising under federal, state, and foreign laws and regulations and of new laws or regulations
restricting our right to advertise products, including advertising to children.
We have a substantial amount of indebtedness, which could limit financing and other options and in
some cases adversely affect our ability to pay dividends.
As of May 30, 2010, we had total debt and noncontrolling interests of $6.7 billion. The agreements
under which we have issued indebtedness do not prevent us from incurring additional unsecured
indebtedness in the future. Our level of indebtedness may limit our:
ability to obtain additional financing for working capital, capital expenditures, or general
corporate purposes, particularly if the ratings assigned to our debt securities by rating
organizations were revised downward; and
flexibility to adjust to changing business and market conditions and may make us more
vulnerable to a downturn in general economic conditions.
There are various financial covenants and other restrictions in our debt instruments and
noncontrolling interests. If we fail to comply with any of these requirements, the related
indebtedness (and other unrelated indebtedness) could become due and payable prior to its stated
maturity and our ability to obtain additional or alternative financing may also be adversely
affected.
Our ability to make scheduled payments on or to refinance our debt and other obligations will
depend on our operating and financial performance, which in turn is subject to prevailing economic
conditions and to financial, business, and other factors beyond our control.
Global capital and credit market issues could negatively affect our liquidity, increase our costs
of borrowing, and disrupt the operations of our suppliers and customers.
The global capital and credit markets, including commercial paper markets, have experienced
increased volatility and disruption, making it more difficult for companies to access those
markets. We depend on stable, liquid, and well-functioning capital and credit markets to fund our
operations. Although we believe that our operating cash flows, financial assets, access to capital
and credit markets, and revolving-credit agreements will permit us to meet our financing needs for
the foreseeable future, there can be no assurance that continued or increased volatility and
disruption in the capital and credit markets will not impair our liquidity or increase our costs of
borrowing. Our business could also be negatively impacted if our suppliers or customers experience
disruptions resulting from tighter capital and credit markets or a slowdown in the general economy.
12
Volatility in the securities markets, interest rates, and other factors or changes in our employee
base could substantially increase our defined benefit pension, other postretirement, and
postemployment benefit costs.
We sponsor a number of defined benefit plans for employees in the United States, Canada, and
various foreign locations, including defined benefit pension, retiree health and welfare,
severance, directors life, and other postemployment plans. Our major defined benefit pension plans
are funded with trust assets invested in a globally diversified portfolio of securities and other
investments. Changes in interest rates, mortality rates, health care costs, early retirement rates,
investment returns, and the market value of plan assets can affect the funded status of our defined
benefit plans and cause volatility in the net periodic benefit cost and future funding requirements
of the plans. A significant increase in our obligations or future funding requirements could have a
negative impact on our results of operations and cash flows from operations.
Our business operations could be disrupted if our information technology systems fail to perform
adequately.
The efficient operation of our business depends on our information technology systems. We rely on
our information technology systems to effectively manage our business data, communications, supply
chain, order entry and fulfillment, and other business processes. The failure of our information
technology systems to perform as we anticipate could disrupt our business and could result in
transaction errors, processing inefficiencies, and the loss of sales and customers, causing our
business and results of operations to suffer. In addition, our information technology systems may
be vulnerable to damage or interruption from circumstances beyond our control, including fire,
natural disasters, systems failures, security breaches, and viruses. Any such damage or
interruption could have a material adverse effect on our business.
If other potentially responsible parties (PRPs) are unable to contribute to remediation costs at
certain contaminated sites, our costs for remediation could be material.
We are subject to various federal, state, local, and foreign environmental and health and safety
laws and regulations. Under certain of these laws, namely the Comprehensive Environmental Response,
Compensation, and Liability Act and its state counterparts, liability for investigation and
remediation of hazardous substance contamination at currently or formerly owned or operated
facilities or at third-party waste disposal sites is joint and several. We currently are involved
in active remediation efforts at certain sites where we have been named a PRP. If other PRPs at
these sites are unable to contribute to remediation costs, we could be held responsible for their
portion of the remediation costs, and those costs could be material. We cannot assure that our
costs in relation to these environmental matters or compliance with environmental laws in general
will not exceed our established liabilities or otherwise have an adverse effect on our business and
results of operations.
A change in the assumptions regarding the future performance of our businesses or a different
weighted-average cost of capital used to value our reporting units or our indefinite-lived
intangible assets could negatively affect our consolidated results of operations and net worth.
Goodwill for each of our reporting units is tested for impairment annually and whenever events or
changes in circumstances indicate that impairment may have occurred. We compare the carrying value
of the net assets of a reporting unit, including goodwill, to the fair value of the unit. If the
fair value of the net assets of the reporting unit is less than the net assets including goodwill,
impairment has occurred. Our estimates of fair value are determined based on a discounted cash flow
model. Growth rates for sales and profits are determined using inputs from our annual long-range
planning process. We also make estimates of discount rates, perpetuity growth assumptions, market
comparables, and other factors. While we currently believe that our goodwill is not impaired,
different assumptions regarding the future performance of our businesses could result in
significant impairment losses.
We evaluate the useful lives of our intangible assets, primarily intangible assets associated with
the Pillsbury, Totinos, Progresso, Green Giant, Old El Paso and Häagen-Dazs 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,
13
and expected changes in distribution channels), the level of required maintenance expenditures, and
the expected lives of other related groups of assets.
Our indefinite-lived intangible assets are also tested for impairment annually and whenever events
or changes in circumstances indicate that their carrying value may not be recoverable. Our estimate
of the fair value of the brands is based on a discounted cash flow model using inputs including:
projected revenues from our annual long-range plan; assumed royalty rates which could be payable if
we did not own the brands; and a discount rate.
As of May 30, 2010, we had $10.3 billion of goodwill and indefinite-lived intangible assets. While
we currently believe that the fair value of each intangible exceeds its carrying value and that
those intangibles so classified 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 significant impairment losses and amortization
expense.
Resolution of uncertain income tax matters and changes in tax laws could adversely affect our
results of operations or cash flows from operations.
We are subject to income tax in the various jurisdictions in which we operate. Increases in
statutory income tax rates and other adverse changes in applicable law in any of the jurisdictions
in which we operate could reduce our after-tax income and have an adverse effect on our results of
operations.
Our consolidated effective income tax rate is influenced by tax planning opportunities available to
us in the various jurisdictions in which we operate. Management judgment is involved in determining
our effective tax rate and in evaluating the ultimate resolution of any uncertain tax positions. We
are periodically engaged in tax controversies (e.g., examinations, administrative appeals, and
litigation) with revenue and tax authorities. We establish liabilities in a variety of taxing
jurisdictions when, despite our belief that our tax return positions are supportable, we believe
that certain positions may be challenged and may need to be revised. We adjust these liabilities in
light of changing facts and circumstances, such as the progress of a tax audit, and changes in
these liabilities affect our effective income tax rate. We also record interest on these
liabilities at the appropriate statutory interest rate. These interest charges are also included in
our effective tax rate, but are not included in our liabilities for uncertain tax positions
disclosed elsewhere in this report. Adjustments to these liabilities for individual issues have
generally not exceeded 1 percent of earnings before income taxes and after-tax earnings from joint
ventures annually.
The Internal Revenue Service (IRS) has concluded its field examinations of our fiscal 2002 to 2006
returns. With limited exceptions, all matters raised in the field examinations have been resolved.
The IRS has challenged the amount of capital loss and depreciation and amortization we reported as
a result of our sale of noncontrolling interests in our General Mills Cereals, LLC (GMC)
subsidiary. The IRS has proposed adjustments that effectively eliminate most of the tax benefits
associated with this transaction. We believe our positions are supported by substantial technical
authority and are vigorously defending our positions. We are currently in negotiations with the IRS
Appeals Division for fiscal 2002 to 2006. Our potential liability for this matter is significant.
We have determined that a portion of this matter should be included as a component of our total
liabilities for uncertain tax positions as disclosed in Note 14 to our Consolidated Financial
Statements included in Item 8 of this report.
|
|
|
ITEM 1B |
|
Unresolved Staff Comments |
None.
We own our principal executive offices and main research facilities, which are located in the
Minneapolis, Minnesota metropolitan area. We operate numerous manufacturing facilities and maintain
many sales and administrative offices and warehouses, mainly in the United States. Other facilities
are operated in Canada and elsewhere around the world.
As of May 30, 2010, we operated 66 facilities for the production of a wide variety of food
products. Of these facilities, 40 are located in the United States, 12 in the Asia/Pacific region
(8 of which are leased), 3 in Canada (1 of
14
which is leased), 6 in Europe (3 of which are leased), 4 in Latin America and Mexico (1 of which is
leased), and 1 in South Africa. The following is a list of the locations of our principal
production facilities, which primarily support the segment noted:
U.S. Retail
|
|
Carson, California |
|
|
|
Lodi, California |
|
|
|
Covington, Georgia |
|
|
|
Belvidere, Illinois |
|
|
|
West Chicago, Illinois |
|
|
|
New Albany, Indiana |
|
|
|
Carlisle, Iowa |
|
|
|
Cedar Rapids, Iowa |
|
|
|
Reed City, Michigan |
|
|
|
Hannibal, Missouri |
|
|
Kansas City, Missouri |
|
|
|
Great Falls, Montana |
|
|
|
Vineland, New Jersey |
|
|
|
Albuquerque, New Mexico |
|
|
|
Buffalo, New York |
|
|
|
Wellston, Ohio |
|
|
|
Murfreesboro, Tennessee |
|
|
|
Milwaukee, Wisconsin |
|
|
|
Irapuato, Mexico |
International
|
|
Buenos Aires, Argentina |
|
|
|
Mt. Waverly, Australia |
|
|
|
Rooty Hill, Australia |
|
|
|
Guangzhou, China |
|
|
|
Nanjing, China |
|
|
Shanghai, China |
|
|
|
Arras, France |
|
|
|
San Adrian, Spain |
|
|
|
Berwick, United Kingdom |
|
|
|
Cagua, Venezuela |
Bakeries and Foodservice
|
|
Chanhassen, Minnesota |
|
|
|
Joplin, Missouri |
|
|
|
Martel, Ohio |
We also own or lease warehouse space totaling 10 million square feet, of which 9 million square
feet are leased, that primarily supports our U.S. Retail segment. We own and lease a number of
sales and administrative offices in the United States, Canada, and elsewhere around the world,
totaling 3 million square feet (700,000 square feet of which are leased).
As part of our Häagen-Dazs business in our International segment, we operate 225 (all leased) and
franchise 372 branded ice cream parlors in various countries around the world, all outside of the
United States and Canada.
15
We are the subject of various pending or threatened legal actions in the ordinary course of our
business. All such matters are subject to many uncertainties and outcomes that are not predictable
with assurance. In our opinion, there were no claims or litigation pending as of May 30, 2010, that
were reasonably likely to have a material adverse effect on our consolidated financial position or
results of operations. See the information contained under the section entitled Environmental
Matters in Item 1 of this report for a discussion of environmental matters in which we are
involved.
PART II
|
|
|
ITEM 5 |
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities |
On May 3, 2010, our Board of Directors approved a two-for-one stock split to be effected in the
form of a 100 percent stock dividend to stockholders of record on May 28, 2010. The Companys
stockholders received one additional share of common stock for each share of common stock in their
possession on that date. The additional shares were distributed on June 8, 2010. This did not
change the proportionate interest that a stockholder maintained in the Company. All shares and per
share amounts set forth in this report have been adjusted for the two-for-one stock split.
Our common stock is listed on the New York Stock Exchange. On June 18, 2010, there were
approximately 33,000 record holders of our common stock. Information regarding the market prices
for our common stock and dividend payments for the two most recent fiscal years is set forth in
Note 18 to the Consolidated Financial Statements in Item 8 of this report.
The following table sets forth information with respect to shares of our common stock that we
purchased during the fiscal quarter ended May 30, 2010:
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
|
|
Average |
|
Shares Purchased as |
|
Maximum Number of Shares |
|
|
Total Number of |
|
Price Paid |
|
Part of a Publicly |
|
that may yet be Purchased |
Period |
|
Shares Purchased (a) |
|
Per Share |
|
Announced Program (b) |
|
Under the Program (b) |
|
March 1, 2010-
April 4, 2010 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
34,061,686 |
|
|
April 5, 2010-
May 2, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,061,686 |
|
|
May 3, 2010-
May 30, 2010 |
|
|
10,203,320 |
|
|
|
36.01 |
|
|
|
10,203,320 |
|
|
|
23,858,366 |
|
|
Total |
|
|
10,203,320 |
|
|
$ |
36.01 |
|
|
|
10,203,320 |
|
|
|
23,858,366 |
|
|
|
(a) |
|
All shares were purchased in the open market. |
|
(b) |
|
On December 11, 2006, our Board of Directors approved and we announced an authorization for
the repurchase of up to 150,000,000 shares of our common stock. Purchases can be made in the
open market or in privately negotiated transactions, including the use of call options and
other derivative instruments, Rule 10b5-1 trading plans, and accelerated repurchase programs.
The Board did not specify an expiration date for the authorization. On June 28, 2010, our
Board of Directors approved and we announced an authorization for the repurchase of up to
100,000,000 shares of our common stock. This new authorization terminated and replaced the
December 11, 2006 authorization. |
16
|
|
|
ITEM 6 |
|
Selected Financial Data |
The following table sets forth selected financial data for each of the fiscal years in the
five-year period ended May 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions, Except Per Share Data, Percentages and Ratios |
|
2010 |
|
2009 (a) |
|
2008 |
|
2007 |
|
2006 |
|
Operating data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
14,796.5 |
|
|
$ |
14,691.3 |
|
|
$ |
13,652.1 |
|
|
$ |
12,441.5 |
|
|
$ |
11,711.3 |
|
Gross margin (b) |
|
|
5,873.6 |
|
|
|
5,233.5 |
|
|
|
4,873.8 |
|
|
|
4,486.4 |
|
|
|
4,166.5 |
|
Selling, general, and administrative expenses (c) |
|
|
3,236.1 |
|
|
|
2,951.8 |
|
|
|
2,623.6 |
|
|
|
2,388.2 |
|
|
|
2,176.5 |
|
Segment operating profit (c) (d) |
|
|
2,861.3 |
|
|
|
2,643.0 |
|
|
|
2,406.9 |
|
|
|
2,261.2 |
|
|
|
2,112.8 |
|
After-tax earnings from joint ventures |
|
|
101.7 |
|
|
|
91.9 |
|
|
|
110.8 |
|
|
|
72.7 |
|
|
|
69.2 |
|
Net earnings attributable to General Mills |
|
|
1,530.5 |
|
|
|
1,304.4 |
|
|
|
1,294.7 |
|
|
|
1,143.9 |
|
|
|
1,090.3 |
|
Depreciation and amortization |
|
|
457.1 |
|
|
|
453.6 |
|
|
|
459.2 |
|
|
|
417.8 |
|
|
|
423.9 |
|
Advertising and media expense |
|
|
908.5 |
|
|
|
732.1 |
|
|
|
587.2 |
|
|
|
491.4 |
|
|
|
471.4 |
|
Research and development expense |
|
|
218.3 |
|
|
|
208.2 |
|
|
|
204.7 |
|
|
|
191.1 |
|
|
|
178.4 |
|
Average shares outstanding (e): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
659.6 |
|
|
|
663.7 |
|
|
|
665.9 |
|
|
|
693.1 |
|
|
|
715.5 |
|
Diluted |
|
|
683.3 |
|
|
|
687.1 |
|
|
|
693.8 |
|
|
|
720.4 |
|
|
|
757.6 |
|
Earnings per share (e): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.32 |
|
|
$ |
1.96 |
|
|
$ |
1.93 |
|
|
$ |
1.65 |
|
|
$ |
1.52 |
|
Diluted |
|
$ |
2.24 |
|
|
$ |
1.90 |
|
|
$ |
1.85 |
|
|
$ |
1.59 |
|
|
$ |
1.45 |
|
Operating ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a percentage of net sales |
|
|
39.7 |
% |
|
|
35.6 |
% |
|
|
35.7 |
% |
|
|
36.1 |
% |
|
|
35.6 |
% |
Selling, general, and administrative expenses as a
percentage of net sales (c) |
|
|
21.9 |
% |
|
|
20.1 |
% |
|
|
19.2 |
% |
|
|
19.2 |
% |
|
|
18.6 |
% |
Segment operating profit as a percentage of net
sales (c) (d) |
|
|
19.3 |
% |
|
|
18.0 |
% |
|
|
17.6 |
% |
|
|
18.2 |
% |
|
|
18.0 |
% |
Effective income tax rate (c) |
|
|
35.0 |
% |
|
|
37.1 |
% |
|
|
34.0 |
% |
|
|
33.0 |
% |
|
|
33.2 |
% |
Return on average total capital (b) (c) (d) |
|
|
13.8 |
% |
|
|
12.3 |
% |
|
|
11.7 |
% |
|
|
11.0 |
% |
|
|
10.4 |
% |
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, buildings, and equipment |
|
$ |
3,127.7 |
|
|
$ |
3,034.9 |
|
|
$ |
3,108.1 |
|
|
$ |
3,013.9 |
|
|
$ |
2,997.1 |
|
Total assets |
|
|
17,678.9 |
|
|
|
17,874.8 |
|
|
|
19,041.6 |
|
|
|
18,183.7 |
|
|
|
18,075.3 |
|
Long-term debt, excluding current portion |
|
|
5,268.5 |
|
|
|
5,754.8 |
|
|
|
4,348.7 |
|
|
|
3,217.7 |
|
|
|
2,414.7 |
|
Total debt (b) |
|
|
6,425.9 |
|
|
|
7,075.5 |
|
|
|
6,999.5 |
|
|
|
6,206.1 |
|
|
|
6,049.3 |
|
Noncontrolling interests (c) |
|
|
245.1 |
|
|
|
244.2 |
|
|
|
246.6 |
|
|
|
1,139.2 |
|
|
|
1,136.2 |
|
Stockholders equity (c) |
|
|
5,402.9 |
|
|
|
5,172.3 |
|
|
|
6,212.2 |
|
|
|
5,318.7 |
|
|
|
5,772.3 |
|
Cash flow data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
2,181.2 |
|
|
$ |
1,828.2 |
|
|
$ |
1,729.9 |
|
|
$ |
1,751.2 |
|
|
$ |
1,843.5 |
|
Capital expenditures |
|
|
649.9 |
|
|
|
562.6 |
|
|
|
522.0 |
|
|
|
460.2 |
|
|
|
360.0 |
|
Net cash used by investing activities |
|
|
721.2 |
|
|
|
288.9 |
|
|
|
442.4 |
|
|
|
597.1 |
|
|
|
370.0 |
|
Net cash used by financing activities |
|
|
1,503.8 |
|
|
|
1,404.5 |
|
|
|
1,093.0 |
|
|
|
1,398.1 |
|
|
|
1,404.3 |
|
Fixed charge coverage ratio (c) |
|
|
6.42 |
|
|
|
5.33 |
|
|
|
4.91 |
|
|
|
4.51 |
|
|
|
4.67 |
|
Operating cash flow to debt ratio (b) |
|
|
33.9 |
% |
|
|
25.8 |
% |
|
|
24.7 |
% |
|
|
28.2 |
% |
|
|
30.5 |
% |
Share data: (e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low stock price |
|
$ |
25.59 |
|
|
$ |
23.61 |
|
|
$ |
25.72 |
|
|
$ |
24.64 |
|
|
$ |
22.34 |
|
High stock price |
|
|
36.96 |
|
|
|
35.08 |
|
|
|
31.25 |
|
|
|
30.56 |
|
|
|
26.08 |
|
Closing stock price |
|
|
35.62 |
|
|
|
25.59 |
|
|
|
30.54 |
|
|
|
30.08 |
|
|
|
25.90 |
|
Cash dividends per common share |
|
|
0.96 |
|
|
|
0.86 |
|
|
|
0.78 |
|
|
|
0.72 |
|
|
|
0.67 |
|
|
|
(a) |
|
Fiscal 2009 was a 53-week year; all other fiscal years were 52 weeks. |
|
(b) |
|
See Glossary in Item 8 of this report for definition. |
17
|
(c) |
|
In fiscal 2010, we adopted new accounting guidance on noncontrolling interests in financial
statements. To conform to the current years presentation, we made certain reclassifications
in our Consolidated Statements of Earnings and our Consolidated Balance Sheets as described in
Notes 1 and 16 to the Consolidated Financial Statements in Item 8 of this report. Prior year
ratios affected by the reclassifications were updated accordingly. |
|
(d) |
|
See MD&A in Item 7 of this report for our discussion of this measure not defined by generally
accepted accounting principles. |
|
(e) |
|
All shares and per share amounts have been adjusted for the two-for-one stock split effected
in the form of a 100 percent stock dividend distributed on June 8, 2010, to shareholders of
record as of May 28, 2010. |
|
|
|
ITEM 7 |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
EXECUTIVE OVERVIEW
We are a global consumer foods company. We develop distinctive value-added food products and market
them under unique brand names. We work continuously to improve our established 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 and innovative
merchandising. We believe our brand-building strategy is the key to winning and sustaining leading
share positions in markets around the globe.
Our fundamental business goal is to generate superior returns for our stockholders over the long
term. We believe that increases in net sales, segment operating profit, earnings per share (EPS),
and return on average total capital are the key measures of financial performance for our
businesses. See the Non-GAAP Measures section below for a description of our discussion of total
segment operating profit, diluted EPS excluding certain items affecting comparability and return on
average total capital, which are not defined by generally accepted accounting principles (GAAP).
Our objectives are to consistently deliver:
|
|
low single-digit annual growth in net sales; |
|
|
|
mid single-digit annual growth in total segment operating profit; |
|
|
|
high single-digit annual growth in EPS; and |
|
|
|
improvements in return on average total capital. |
We believe that this financial performance, coupled with an attractive dividend yield, should
result in long-term value creation for stockholders. We also return a substantial amount of cash
annually to stockholders through share repurchases.
For the fiscal year ended May 30, 2010, our net sales grew 1 percent, total segment operating
profit grew 8 percent, diluted EPS grew 18 percent, and our return on average total capital
improved by 150 basis points. Diluted EPS growth excluding certain items affecting comparability, a
non-GAAP measure used for management reporting and incentive compensation purposes, was 16 percent
(see the Non-GAAP Measures section below for our use of this measure and our discussion of the
items affecting comparability). Net cash provided by operations totaled $2.2 billion in fiscal
2010, enabling us to increase our annual dividend payments per share by 12 percent from fiscal 2009
and continue returning cash to stockholders through share repurchases, which totaled $692 million
in fiscal 2010. We also made significant capital investments totaling $650 million in fiscal 2010.
These results met or exceeded our long-term targets.
We achieved each of our five key operating objectives for fiscal 2010:
|
|
We generated broad-based growth in net sales across our businesses which enabled us to
achieve a year-over-year increase, despite one less week in fiscal 2010. Contributions from
volume were flat, including the loss of 2 points of growth from divested products and a 1
point loss from an additional week in fiscal 2009. We
|
18
|
|
generated 1 point of growth from net price realization and product mix. Foreign exchange was
flat compared to fiscal 2009.
|
|
|
|
We increased our gross margin as a percent of net sales 410 basis points driven by a decrease
in input costs and a focus on our holistic margin management (HMM) programs, which include
cost-savings initiatives, marketing spending efficiencies, and profitable sales mix
strategies.
|
|
|
|
We invested a significant amount in media and other brand-building marketing programs, which
contributed to net sales growth on our consumer businesses.
|
|
|
|
We grew our Bakeries and Foodservice segment operating profit, including a focus on
higher-margin, branded product lines within our most attractive foodservice customer channels.
|
|
|
|
We continued to develop our business in international markets. We focused on our core
platforms of ready-to-eat cereal, super premium ice cream, convenient meal solutions, and
healthy snacking by introducing new products and investing in consumer spending.
|
Details of our financial results are provided in the Fiscal 2010 Consolidated Results of
Operations section below.
In fiscal 2011, we expect to deliver another year of quality growth. We are targeting low
single-digit growth in net sales driven by volume gains. We have a strong line-up of consumer
marketing, merchandising, and innovation planned to fuel growth for our leading brands. We will
continue to build our four global platforms in markets around the world, accelerating our efforts
in rapidly growing emerging markets. The environment remains challenging for the Bakeries and
Foodservice segment, but we believe that our focus on higher-margin branded product lines within
the most attractive foodservice channels will drive performance for this segment. We remain
committed to using HMM to help manage our costs. We are targeting mid single-digit growth in
segment operating profit, despite renewed input cost inflation and continued investment in
advertising and media.
Our businesses generate strong levels of cash flows. We use some of this cash to reinvest in our
business, and our fiscal 2011 plans call for $700 million of expenditures for capital projects. We
also prioritize returning cash to stockholders. Our plan for fiscal 2011 includes significant cash
returned to stockholders through share repurchases and dividends. Our long-term objective is to
reduce outstanding shares by a net 2 percent per year. We intend to continue repurchasing shares in
fiscal 2011 in-line with our long-term objective. On June 28, 2010, our Board of Directors approved
a dividend increase to an annual rate of $1.12 per share, a 17 percent increase from the rate paid
in fiscal 2010. Our Board of Directors also approved and we announced an authorization for the
repurchase of up to 100,000,000 shares of our common stock. This new authorization terminated and
replaced a December 11, 2006 repurchase authorization.
In May 2010, our Board of Directors approved a two-for-one stock split to be effected in the form
of a 100 percent stock dividend to stockholders of record on May 28, 2010. The Companys
stockholders received one additional share of common stock for each share of common stock in their
possession on that date. The additional shares were distributed on June 8, 2010. This did not
change the proportionate interest that a stockholder maintained in the Company. All shares and per
share amounts have been adjusted for the two-for-one stock split throughout this report.
Certain terms used throughout this report are defined in a glossary in Item 8 of this report.
FISCAL 2010 CONSOLIDATED RESULTS OF OPERATIONS
In fiscal 2010, net earnings attributable to General Mills was $1,530 million, up 17 percent from
$1,304 million in fiscal 2009, and we reported diluted EPS of $2.24 in fiscal 2010, up 18 percent
from $1.90 in fiscal 2009. Fiscal 2010 and 2009 results include losses from the mark-to-market
valuation of certain commodity positions and grain inventories. Fiscal 2010 results also include
income tax expense related to the enactment of federal health care reform, and the fiscal 2009
results include a net divestiture gain, income from a settlement with an insurance carrier, and the
impact of a court decision on an uncertain tax matter. Diluted EPS excluding these items affecting
comparability, a non-GAAP measure used for management reporting and incentive compensation
purposes, was
19
$2.30 in fiscal 2010, up 16 percent from $1.99 in fiscal 2009 (see the Non-GAAP Measures section
below for our use of this measure and our discussion of the items affecting comparability).
The components of net sales growth are shown in the following table:
Components of Net Sales Growth
|
|
|
|
|
Fiscal 2010 |
|
|
vs. 2009 |
|
Contributions from volume growth (a)
|
|
Flat |
Net price realization and mix
|
|
1 pt |
Foreign currency exchange
|
|
Flat |
|
Net sales growth
|
|
1 pt |
|
|
(a) |
|
Measured in tons based on the stated weight of our product shipments. |
Net sales grew 1 point in fiscal 2010, driven by 1 percentage point of growth from net price
realization and mix. Contributions from volume were flat, including the loss of 2 points of growth
from divested products and a 1 percentage point loss from an additional week in fiscal 2009.
Foreign exchange did not affect sales growth in fiscal 2010.
Cost of sales decreased $535 million in fiscal 2010 to $8,923 million. This decrease was mainly
driven by favorable mix, HMM initiatives, and lower input costs. In fiscal 2010, we recorded a $7
million net increase in cost of sales related to mark-to-market valuation of certain commodity
positions and grain inventories as described in Note 7 to the Consolidated Financial Statements in
Item 8 of this report, compared to a net increase of $119 million in fiscal 2009. In fiscal 2010,
we recorded a charge of $48 million resulting from a change in the capitalization threshold for
certain equipment parts, enabled by an upgrade to our parts management system.
Gross margin grew 12 percent in fiscal 2010 versus fiscal 2009. Gross margin as a percent of net
sales increased by 410 basis points from fiscal 2009 to fiscal 2010. These improvements were driven
by favorable mix, HMM initiatives and lower input costs.
Selling, general and administrative (SG&A) expenses were up $284 million in fiscal 2010 versus
fiscal 2009. SG&A expenses as a percent of net sales in fiscal 2010 increased by 2 percentage
points compared to fiscal 2009. The increase in SG&A expenses was primarily driven by a 24 percent
increase in advertising and media expense. In fiscal 2010, the Venezuelan government devalued the
Bolivar exchange rate against the U.S. dollar. The effect of the devaluation was a $14 million
foreign exchange loss. Also in fiscal 2010, we recorded a $13 million recovery against a corporate
investment compared to write downs of $35 million related to various corporate investments in
fiscal 2009. In fiscal 2009, we recorded a $41 million gain from a settlement with the insurance
carrier covering the loss of our La Salteña pasta manufacturing facility in Argentina, which was
destroyed by fire in fiscal 2008.
There were no divestitures in fiscal 2010. In fiscal 2009, we recorded a net divestiture gain of
$129 million related to the sale of our PopSecret product line from our U.S. Retail segment for
$192 million in cash. Also in fiscal 2009, we recorded a $38 million loss on the sale of a portion
of the assets of our frozen unbaked bread dough product line in our Bakeries and Foodservice
segment, including the discontinuation of our frozen dinner roll product line in our U.S. Retail
segment that shared a divested facility. In addition, we recorded a $6 million loss in fiscal 2009
on the sale of our bread concentrates product line in our Bakeries and Foodservice segment.
Interest, net for fiscal 2010 totaled $402 million, $19 million higher than fiscal 2009. Average
interest-bearing instruments decreased $1.0 billion in fiscal 2010, leading to a $58 million
decrease in net interest, while average interest rates increased 60 basis points generating a $37
million increase in net interest. The average interest rate on our total outstanding debt was 6.3
percent in fiscal 2010 compared to 5.7 percent in fiscal 2009. In fiscal 2010, we also recorded a
loss of $40 million related to the repurchase of certain notes, which represented the premium paid,
the write-off of the remaining discount and unamortized fees, and the settlement of the related
swaps.
20
Restructuring, impairment, and other exit costs totaled $31 million in fiscal 2010 as follows:
|
|
|
|
|
Expense (Income), in Millions |
|
|
|
|
|
Discontinuation of kids refrigerated yogurt beverage and
microwave soup product lines |
|
$ |
24.1 |
|
Discontinuation of the breadcrumbs product line at Federalsburg,
Maryland plant |
|
|
6.2 |
|
Sale of Contagem, Brazil bread and pasta plant |
|
|
(0.6 |
) |
Charges associated with restructuring actions previously announced |
|
|
1.7 |
|
|
Total |
|
$ |
31.4 |
|
|
In fiscal 2010, we decided to exit our kids refrigerated yogurt beverage product line at our
Murfreesboro, Tennessee plant and our microwave soup product line at our Vineland, New Jersey plant
to rationalize capacity for more profitable items. Our decisions to exit these U.S. Retail segment
products resulted in a $24 million non-cash charge against the related long-lived assets. No
employees were affected by these actions. We expect to recognize $2 million of other exit costs
related to these actions, which we anticipate will be completed by the end of the second quarter of
fiscal 2011. We also decided to exit our breadcrumb product line at our Federalsburg, Maryland
plant in our Bakeries and Foodservice segment. As a result of this decision, we concluded that the
future cash flows generated by these products were insufficient to recover the net book value of
the associated long-lived assets. Accordingly, we recorded a non-cash charge of $6 million
primarily related to the impairment of these long-lived assets and in the fourth quarter of fiscal
2010, we sold our manufacturing facility in Federalsburg for $3 million. In fiscal 2010, we also
recorded a $1 million net gain on the sale of our previously closed Contagem, Brazil bread and
pasta plant for cash proceeds of $6 million, and recorded $2 million of costs related to previously
announced restructuring actions. In fiscal 2010, we paid $8 million in cash related to
restructuring actions taken in fiscal 2010 and previous years.
Our consolidated effective tax rate for fiscal 2010 was 35.0 percent compared to 37.1 percent in
fiscal 2009. The 2.1 percentage point decrease primarily reflects an unfavorable court decision
last year on an uncertain tax matter, which increased fiscal 2009 income tax expense by $53
million. In addition, fiscal 2009 included $15 million of tax expense related to nondeductible
goodwill write-offs associated with divestitures. Fiscal 2010 income tax expense included a $35
million increase related to the enactment of federal health care reform (the Patient Protection and
Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010). This
legislation changed the tax treatment of subsidies to companies that provide prescription drug
benefits that are at least the equivalent of benefits under Medicare Part D (see the Impact of
Inflation section below for additional discussion of this legislation). The fiscal 2010 tax rate
also included increased benefits from the domestic manufacturing deduction.
After-tax earnings from joint ventures for fiscal 2010 increased to $102 million compared to $92
million in the same period in fiscal 2009. In fiscal 2010, net sales for CPW grew 6 percent, due to
4 percentage points of growth from net price realization and mix, 1 percentage point from favorable
foreign exchange and a 1 percentage point increase in volume, including growth in Russia, Southeast
Asia, the Middle East and Latin America. Net sales for HDJ decreased 4 percent, due primarily to an
11 percentage point decline in volume, partially offset by favorable foreign exchange.
Average diluted shares outstanding decreased by 4 million in fiscal 2010 from fiscal 2009, due
primarily to the timing of share repurchases including the repurchase of 21 million shares since
the end of fiscal 2009, partially offset by the issuance of shares upon stock option exercises.
FISCAL 2010 CONSOLIDATED BALANCE SHEET ANALYSIS
Cash and cash equivalents decreased $77 million from fiscal 2009, as discussed in the Liquidity
section below.
Receivables increased $88 million from fiscal 2009, as a result of sales timing shifts and a $33
million increase in foreign exchange translation. The allowance for doubtful accounts was
essentially unchanged from fiscal 2009.
21
Inventories were essentially flat to fiscal 2009 balances.
Prepaid expenses and other current assets decreased $91 million from fiscal 2009, due mainly to a
$48 million decrease in certain equipment parts as a result of a change in the capitalization
threshold, enabled by an upgrade to our parts management system. In addition, there was a $22
million decrease in notes receivable and a $19 million reduction in collateral for certain
derivative contracts.
Land, buildings, and equipment increased $93 million from fiscal 2009, as capital expenditures of
$650 million were partially offset by depreciation expense of $448 million and foreign exchange
impact of $32 million in fiscal 2010.
Goodwill and other intangible assets decreased $102 million from fiscal 2009 primarily due to
foreign currency translation.
Other assets decreased $132 million from fiscal 2009, driven mainly by a $193 million decrease in
our prepaid pension assets due to a decrease in the funded status of our pension plans and a $60
million decrease in non-current interest rate derivative receivables, partially offset by an
increase in advances to joint ventures, mainly CPW, of $131 million.
Accounts payable increased $46 million to $850 million in fiscal 2010 as a result of an increase in
SG&A expenses and shifts in timing.
Long-term debt, including current portion, and notes payable decreased $650 million from fiscal
2009. In May 2010, we paid $437 million to repurchase $400 million of debt as part of a cash tender
offer. We repurchased $221 million of our 6.0 percent notes due 2012 and $179 million of the 5.65
percent notes due 2012.
The current and noncurrent portions of net deferred income taxes liability decreased $318 million
from fiscal 2009, due to increased pension and post retirement liabilities and the book versus tax
treatment of our deferred compensation plans. We also incurred $22 million of deferred income tax
expense in fiscal 2010, including a $35 million increase in the net deferred income tax liability
related to changes in the tax treatment of subsidies to companies that provide prescription drug
benefits that are at least the equivalent of benefits under Medicare Part D included in the Patient
Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
of 2010.
Other current liabilities increased $280 million from fiscal 2009, primarily driven by increases in
accrued taxes of $272 million and an $82 million increase in consumer marketing accruals. These
increases were partially offset by a $46 million decrease in accrued interest payable.
Other liabilities increased $186 million from fiscal 2009, driven by an increase in accrued
compensation and benefits of $537 million primarily due to a decrease in the funded status of our
pension plans, partially offset by a $265 million shift in taxes payable from non-current to
current and a $78 million decrease in non-current interest derivatives payable.
Retained earnings increased $887 million from fiscal 2009, reflecting fiscal 2010 net earnings of
$1,530 million less dividends paid of $644 million. Treasury stock increased $142 million from
fiscal 2009, due to $692 million of share repurchases, partially offset by $550 million related to
stock-based compensation plans. Additional paid in capital increased $95 million from fiscal 2009,
due to stock compensation plan activity. Accumulated other comprehensive loss (AOCI) increased by
$609 million after-tax from fiscal 2009, primarily driven by losses in our pension, other
postretirement, and postemployment benefit plans of $460 million. Noncontrolling interests
increased by $1 million from fiscal 2009, due primarily to an increase in net earnings attributable
to General Mills Cereals, LLC (GMC) in fiscal 2010.
22
FISCAL 2009 CONSOLIDATED RESULTS OF OPERATIONS
Net earnings attributable to General Mills were $1,304 million in fiscal 2009, up 1 percent from
$1,295 million in fiscal 2008, and we reported diluted EPS of $1.90 in fiscal 2009, up 3 percent
from $1.85 in fiscal 2008. Fiscal 2009 and 2008 results include effects from the mark-to-market
valuation of certain commodity positions and grain inventories, and the effects of court rulings on
an uncertain tax matter. Fiscal 2009 results also include a net divestiture gain and income from a
settlement with an insurance carrier. Diluted EPS excluding these items affecting comparability, a
non-GAAP measure used for management reporting and incentive compensation purposes, was $1.99 in
fiscal 2009, up 13 percent from $1.76 in fiscal 2008 (see the Non-GAAP Measures section below for
our use of this measure and our discussion of the items affecting comparability).
The components of net sales growth are shown in the following table:
Components of Net Sales Growth
|
|
|
|
|
|
|
Fiscal 2009 |
|
|
|
vs. 2008 |
|
|
Contributions from volume growth (a) |
|
2 pts |
|
Net price realization and mix |
|
8 pts |
|
Foreign currency exchange |
|
-2 pts |
|
|
Net sales growth |
|
8 pts |
|
|
|
|
|
(a) |
|
Measured in tons based on the stated weight of our product shipments. |
Net sales for fiscal 2009 grew 8 percent to $14.7 billion, driven by 2 percentage points of volume
growth, mainly in our U.S. Retail and International segments, and 8 percentage points of growth
from net price realization and mix. This growth was offset by 2 percentage points of unfavorable
foreign currency exchange. The 53rd week in fiscal 2009 contributed 1 percentage point of net sales
growth.
Cost of sales was up $680 million in fiscal 2009 versus fiscal 2008, while cost of sales as a
percent of net sales remained essentially flat from fiscal 2008 to fiscal 2009. Higher volume drove
$90 million of the increase in cost of sales. Higher input costs and changes in mix increased cost
of sales by $453 million. We also recorded a $119 million net increase in cost of sales related to
mark-to-market valuation of certain commodity positions and grain inventories, compared to a net
decrease of $57 million in fiscal 2008. In fiscal 2008, we recorded $18 million of charges to cost
of sales, primarily for depreciation associated with restructured assets. Cost of sales for fiscal
2008 also included $21 million of costs, including product write-offs, logistics, and other costs
related to voluntary product recalls.
Gross margin grew 7 percent in fiscal 2009 versus fiscal 2008, as operating leverage, cost savings
initiatives, and net price realization offset input cost inflation. Gross margin as a percent of
net sales decreased by 10 basis points from fiscal 2008 to fiscal 2009.
SG&A expenses increased by $328 million in fiscal 2009 versus fiscal 2008. The increase in SG&A
expenses from fiscal 2008 was largely the result of a 17 percent increase in advertising and media
expense and other consumer marketing spending consistent with our brand-building strategy, along
with higher levels of compensation and benefits expense. We also recorded write-downs of $35
million related to various corporate investments in fiscal 2009, compared to a net gain of $16
million in fiscal 2008. These higher costs were partially offset by a $41 million settlement with
the insurance carrier covering our La Salteña pasta manufacturing plant in Argentina that was
destroyed by fire. SG&A expenses as a percent of net sales increased by 90 basis points in fiscal
2009 compared to fiscal 2008.
During fiscal 2009 we recorded a net divestiture gain of $85 million. We recorded a gain of $129
million related to the sale of our PopSecret microwave popcorn product line from our U.S. Retail
segment. We recorded a $38 million loss on the sale of a portion of the assets of our frozen
unbaked bread dough product line in our Bakeries and Foodservice segment, including the
discontinuation of our frozen dinner roll product line in our U.S. Retail segment
23
that shared a divested facility. In addition, we recorded a $6 million loss on the sale of our
bread concentrates product line in our Bakeries and Foodservice segment.
Interest, net for fiscal 2009 totaled $383 million, $17 million lower than fiscal 2008. Average
interest-bearing instruments decreased $70 million in fiscal 2009 leading to a $4 million decrease
in net interest. Average interest rates also decreased 20 basis points generating a $13 million
decrease in net interest. The average interest rate on our total outstanding debt was 5.7 percent
in fiscal 2009 compared to 5.9 percent in fiscal 2008.
Restructuring, impairment, and other exit costs totaled $42 million in fiscal 2009 as follows:
|
|
|
|
|
Expense, in Millions |
|
|
|
|
|
Closure of Contagem, Brazil bread and pasta plant |
|
$ |
16.8 |
|
Discontinuation of product line at Murfreesboro, Tennessee plant |
|
|
8.3 |
|
Charges associated with restructuring actions previously announced |
|
|
16.5 |
|
|
Total |
|
$ |
41.6 |
|
|
In fiscal 2009, due to declining financial results, we approved the restructuring of our
International segments business in Brazil. We discontinued the production and marketing of Forno
De Minas cheese bread and Frescarini pasta brands in Brazil and closed our Contagem, Brazil
manufacturing facility. These actions affected 556 employees in our Brazilian operations. Our other
product lines in Brazil were not affected by the decision. As a result of this decision, we
incurred a charge of $17 million in the fourth quarter of fiscal 2009, consisting primarily of $5
million of employee severance, an $11 million non-cash impairment charge to write down assets to
their net realizable value, and $1 million of other costs associated with this restructuring
action. This restructuring action was completed in the second quarter of fiscal 2010.
Due to declining net sales and to improve manufacturing capacity for other product lines, we
decided to exit our U.S. Retail segments Perfect Portions refrigerated biscuits product line at
our manufacturing facility in Murfreesboro, Tennessee. We recorded an $8 million non-cash
impairment charge against long lived assets used for this product line. Our other product lines at
Murfreesboro were not affected by the decision, and no employees were affected by this action,
which was completed in the second quarter of fiscal 2010.
In fiscal 2009, we also incurred $17 million of incremental plant closure expenses related to
previously announced restructuring activities, including $10 million for the remainder of our lease
obligation at our previously closed facility in Trenton, Ontario.
In fiscal 2009, we paid $10 million in cash related to restructuring actions taken in fiscal 2009
and previous years.
Our consolidated effective income tax rate for fiscal 2009 was 37.1 percent compared to 34.0
percent in fiscal 2008. The increase in the effective rate is primarily due to the effect of a 2009
U.S. appellate court decision that reversed a 2008 U.S. district court decision. In the third
quarter of fiscal 2008, we recorded an income tax benefit of $31 million as a result of a favorable
U.S. district court decision on an uncertain tax matter. In the third quarter of fiscal 2009, the
U.S. Court of Appeals for the Eighth Circuit issued an opinion reversing the district court
decision. As a result, we recorded $53 million (including interest) of income tax expense related
to the reversal of cumulative income tax benefits from this uncertain tax matter recognized in
fiscal years 1992 through 2008. The rate also increased in fiscal 2009 due to $15 million of tax
expense related to nondeductible goodwill write-offs associated with our divestitures.
Other items that decreased the 2009 effective income tax rate include a favorable California
appeals court decision that resulted in the recognition of $10 million of tax benefits. In
addition, we recognized $21 million of other tax benefits, primarily related to foreign tax credits
and audit settlements.
After-tax earnings from joint ventures totaled $92 million in fiscal 2009, compared to $111 million
in fiscal 2008. Fiscal 2009 earnings were reduced by a $6 million deferred income tax valuation
allowance. In fiscal 2008, earnings included $16 million for our share of a gain on the sale of a
CPW property in the United Kingdom offset by
24
restructuring expenses of $8 million. Fiscal 2008 results also included $2 million for our share of
a gain on the sale of the 8th Continent soymilk business. In fiscal 2009, net sales for CPW
increased 5 percent. Volume growth of 4 percentage points, including growth in Russia, the Middle
East, Asia, and Latin America, and net price realization were offset by unfavorable foreign
exchange. Net sales for our Häagen-Dazs joint venture in Japan increased 2 percent in fiscal 2009
as a result of favorable foreign exchange of 11 percentage points and positive net price
realization, offset by a decrease in volume.
Average diluted shares outstanding decreased by 7 million from fiscal 2008 due to the repurchase of
40 million shares of common stock in fiscal 2009, partially offset by the issuance of 29 million
shares of common stock in fiscal 2008 to settle a forward contract with an affiliate of Lehman
Brothers, Inc. (Lehman Brothers), the issuance of common stock upon stock option exercises, the
issuance of annual stock awards, the vesting of restricted stock units, and the issuance of shares
to acquire Humm Foods.
RESULTS OF SEGMENT OPERATIONS
Our businesses are organized into three operating segments: U.S. Retail; International; and
Bakeries and Foodservice.
The following tables provide the dollar amount and percentage of net sales and operating profit
from each segment for fiscal years 2010, 2009, and 2008:
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
|
Net Sales |
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
2009 |
|
2008 |
U.S. Retail |
|
$ |
10,323.5 |
|
|
|
70 |
% |
|
$ |
10,052.1 |
|
|
|
68 |
% |
|
$ |
9,072.0 |
|
|
|
66 |
% |
International |
|
|
2,702.5 |
|
|
|
18 |
|
|
|
2,591.4 |
|
|
|
18 |
|
|
|
2,558.8 |
|
|
|
19 |
|
Bakeries and
Foodservice |
|
|
1,770.5 |
|
|
|
12 |
|
|
|
2,047.8 |
|
|
|
14 |
|
|
|
2,021.3 |
|
|
|
15 |
|
|
Total |
|
$ |
14,796.5 |
|
|
|
100 |
% |
|
$ |
14,691.3 |
|
|
|
100 |
% |
|
$ |
13,652.1 |
|
|
|
100 |
% |
|
Segment Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
|
Operating |
|
|
Operating |
|
|
Operating |
|
|
Operating |
|
|
Operating |
|
|
Operating |
|
|
|
Profit |
|
|
Profit |
|
|
Profit |
|
|
Profit |
|
|
Profit |
|
|
Profit |
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
2009 |
|
2008 |
U.S. Retail |
|
$ |
2,392.0 |
|
|
|
83 |
% |
|
$ |
2,208.5 |
|
|
|
84 |
% |
|
$ |
1,971.2 |
|
|
|
82 |
% |
International |
|
|
219.2 |
|
|
|
8 |
|
|
|
263.5 |
|
|
|
10 |
|
|
|
270.3 |
|
|
|
11 |
|
Bakeries and
Foodservice |
|
|
250.1 |
|
|
|
9 |
|
|
|
171.0 |
|
|
|
6 |
|
|
|
165.4 |
|
|
|
7 |
|
|
Total |
|
$ |
2,861.3 |
|
|
|
100 |
% |
|
$ |
2,643.0 |
|
|
|
100 |
% |
|
$ |
2,406.9 |
|
|
|
100 |
% |
|
Segment operating profit excludes unallocated corporate items, gain on divestitures, and
restructuring, impairment, and other exit costs because these items affecting operating profit are
centrally managed at the corporate level and are excluded from the measure of segment profitability
reviewed by our executive management.
U.S. RETAIL SEGMENT
Our U.S. Retail segment reflects business with a wide variety of grocery stores, mass
merchandisers, membership stores, natural food chains, and drug, dollar and discount chains
operating throughout the United States. Our major
25
product categories in this business segment are ready-to-eat cereals, refrigerated yogurt,
ready-to-serve soup, dry dinners, shelf stable and frozen vegetables, refrigerated and frozen dough
products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks,
and a wide variety of organic products including soup, granola bars, and cereal.
Components of net sales growth are shown in the following table:
Components of U.S. Retail Net Sales Growth
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
vs. 2009 |
|
|
vs. 2008 |
|
|
Contributions from volume growth (a) |
|
1 pt |
|
|
4 pts |
|
Net price realization and mix |
|
2 pts |
|
|
7 pts |
|
|
Net sales growth |
|
3 pts |
|
|
11 pts |
|
|
|
|
|
(a) |
|
Measured in tons based on the stated weight of our product shipments. |
In fiscal 2010, net sales for our U.S. Retail segment were $10.3 billion, up 3 percent from fiscal
2009. Net price realization and mix added 2 percentage points of growth and volume on a tonnage
basis contributed 1 percentage point of growth including a loss of 2 percentage points from an
additional week in fiscal 2009.
Net sales for this segment totaled $10.1 billion in fiscal 2009 and $9.1 billion in fiscal 2008.
Net price realization and mix added 7 percentage points of growth and volume on a tonnage basis
contributed 4 percentage points of growth from fiscal 2008 to fiscal 2009.
We experienced growth in all of our U.S. retail divisions in fiscal 2010 as shown in the tables
below:
U.S. Retail Net Sales by Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Big G |
|
$ |
2,382.2 |
|
|
$ |
2,259.5 |
|
|
$ |
2,028.0 |
|
Meals |
|
|
2,168.2 |
|
|
|
2,157.1 |
|
|
|
2,006.1 |
|
Pillsbury |
|
|
1,883.8 |
|
|
|
1,869.8 |
|
|
|
1,673.4 |
|
Yoplait |
|
|
1,504.2 |
|
|
|
1,468.9 |
|
|
|
1,293.1 |
|
Snacks |
|
|
1,326.9 |
|
|
|
1,246.6 |
|
|
|
1,197.6 |
|
Baking Products |
|
|
854.8 |
|
|
|
850.7 |
|
|
|
723.3 |
|
Small Planet Foods and other |
|
|
203.4 |
|
|
|
199.5 |
|
|
|
150.5 |
|
|
Total |
|
$ |
10,323.5 |
|
|
$ |
10,052.1 |
|
|
$ |
9,072.0 |
|
|
26
U.S. Retail Net Sales Percentage Change by Division
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
vs. 2009 |
|
|
vs. 2008 |
|
|
Big G |
|
|
5 |
% |
|
|
11 |
% |
Meals |
|
|
1 |
|
|
|
8 |
|
Pillsbury |
|
|
1 |
|
|
|
12 |
|
Yoplait |
|
|
2 |
|
|
|
14 |
|
Snacks |
|
|
6 |
|
|
|
4 |
|
Baking Products |
|
Flat |
|
|
|
18 |
|
Small Planet Foods |
|
|
3 |
|
|
|
30 |
|
|
Total |
|
|
3 |
% |
|
|
11 |
% |
|
In fiscal 2010, net sales for Big G cereals grew 5 percent driven by Multigrain Cheerios, Cinnamon
Toast Crunch, and Fiber One cereals and introductory sales of Chocolate Cheerios and Wheaties Fuel.
Meals division net sales increased 1 percent as gains from Green Giant frozen vegetables and Old El
Paso Mexican products were partially offset by lower sales of Progresso ready-to-serve soups.
Pillsbury net sales grew 1 percent including gains on Totinos pizza and Pizza Rolls snacks and
Pillsbury Toaster Strudel pastries. Net sales for Yoplait grew 2 percent, led by introductory sales
from Yoplait Delights and Yoplait Greek style yogurt. Snacks net sales grew 6 percent, driven by
Fiber One bars, Nature Valley grain snacks and several fruit snack varieties. Net sales for Baking
Products were flat. Small Planet Foods net sales were up 3 percent, reflecting performance of
Cascadian Farm cereal and granola bars and Lärabar fruit and nut energy bars.
In fiscal 2009, Big G cereals net sales increased 11 percent driven by growth across the portfolio,
including gains on MultiGrain Cheerios, Honey Nut Cheerios, Cinnamon Toast Crunch, and the Fiber
One cereals. Net sales for Meals grew 8 percent led by Helper dinner mixes, the new Macaroni Grill
dinner mix line, and Green Giant frozen vegetables. Pillsbury net sales increased 12 percent led by
Totinos pizza and Pizza Rolls snacks, Pillsbury refrigerated dough products, and new Pillsbury
Savorings frozen appetizers. Yoplait net sales grew 14 percent led by contributions from Yoplait
Light. Net sales for Snacks increased 4 percent, as gains in grain snacks including Fiber One bars
and Chex Mix more than offset the reduction in sales from the divestiture of PopSecret in fiscal
2009. Baking Products net sales grew 18 percent reflecting gains in Betty Crocker dessert mixes,
Bisquick baking mix, and Gold Medal flour. Net sales for Small Planet Foods grew 30 percent
including contributions from the Lärabar product line acquired in fiscal 2009.
Segment operating profit of $2.4 billion in fiscal 2010 improved $184 million, or 8 percent, over
fiscal 2009. The increase was primarily driven by favorable supply chain costs of $218 million, net
price realization and mix of $153 million, and volume growth of $49 million, partially offset by a
22 percent increase in advertising and media expense and higher administrative costs.
Segment operating profit of $2.2 billion in fiscal 2009 improved $237 million, or 12 percent, over
fiscal 2008. Net price realization and mix increased segment operating profit by $596 million, and
volume growth increased segment operating profit by $146 million. These were partially offset by
increased supply chain input costs of $338 million, a 19 percent increase in consumer marketing
expense consistent with our brand-building strategy, and higher administrative costs. In fiscal
2008, voluntary product recalls reduced segment operating profit by $24 million.
INTERNATIONAL SEGMENT
In Canada, our major product categories are ready-to-eat cereals, shelf stable and frozen
vegetables, dry dinners, refrigerated and frozen dough products, dessert and baking mixes, frozen
pizza snacks, and grain, fruit and savory snacks. In markets outside North America, our product
categories include super-premium ice cream, grain snacks, shelf stable and frozen vegetables, dough
products, and dry dinners. Our International segment also includes products manufactured in the
United States for export, mainly to Caribbean and Latin American markets, as well as products we
manufacture for sale to our international joint ventures. Revenues from export activities are
reported in
27
the region or country where the end customer is located. These international businesses are managed
through 34 sales and marketing offices.
Components of net sales growth are shown in the following table:
Components of International Net Sales Growth
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
Fiscal 2009 |
|
|
vs. 2009 |
|
vs. 2008 |
|
Contributions from volume growth (a) |
|
Flat |
|
1 pt |
Net price realization and mix |
|
3 pts |
|
9 pts |
Foreign currency exchange |
|
1 pt |
|
-9 pts |
|
Net sales growth |
|
4 pts |
|
1 pt |
|
|
|
|
(a) |
|
Measured in tons based on the stated weight of our product shipments. |
In fiscal 2010, net sales for our International segment were $2,702 million, up 4 percent from
fiscal 2009. This growth was driven by 3 percentage points from net price realization and mix and 1
percentage point of favorable foreign currency exchange. Pound volume was flat, reflecting a 2
percentage point reduction from divested product lines.
Net sales totaled $2,591 million in fiscal 2009, up 1 percent from $2,559 million in fiscal 2008.
The growth in fiscal 2009 was driven mainly by 9 percentage points of net price realization and mix
and 1 percentage point of volume growth, partially offset by 9 percentage points of unfavorable
foreign currency exchange.
Net sales growth for our International segment by geographic region is shown in the following
tables:
International Net Sales by Geographic Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Europe |
|
$ |
868.8 |
|
|
$ |
857.8 |
|
|
$ |
898.5 |
|
Canada |
|
|
715.6 |
|
|
|
651.8 |
|
|
|
697.0 |
|
Asia/Pacific |
|
|
721.6 |
|
|
|
635.8 |
|
|
|
577.4 |
|
Latin America |
|
|
396.5 |
|
|
|
446.0 |
|
|
|
385.9 |
|
|
Total |
|
$ |
2,702.5 |
|
|
$ |
2,591.4 |
|
|
$ |
2,558.8 |
|
|
International Change in Net Sales by Geographic Region
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
vs. 2009 |
|
|
vs. 2008 |
|
|
Europe |
|
|
1 |
% |
|
|
(5 |
)% |
Canada |
|
|
10 |
|
|
|
(6 |
) |
Asia/Pacific |
|
|
14 |
|
|
|
10 |
|
Latin America |
|
|
(11 |
) |
|
|
16 |
|
|
Total |
|
|
4 |
% |
|
|
1 |
% |
|
In fiscal 2010, net sales in Europe grew 1 percent driven by growth in Nature Valley and Old El
Paso partially offset by unfavorable foreign currency exchange. Net sales in Canada increased 10
percent due to favorable foreign currency exchange and growth from cereal and Old El Paso. In the
Asia/Pacific region, net sales grew 14 percent due to growth from Häagen-Dazs shops and Wanchai
Ferry products in China. Latin America net sales decreased 11 percent due to unfavorable foreign
currency exchange, partially offset by net price realization.
28
In fiscal 2009, net sales in Europe decreased by 5 percent driven by 9 points of unfavorable
foreign currency exchange, partially offset by net sales growth of Old El Paso across Europe and
dough products in the United Kingdom. Net sales in Canada decreased 6 percent due to 13 points of
unfavorable foreign currency exchange partially offset by growth from cereal products and Fiber One
bars. Net sales in the Asia/Pacific region increased by 10 percent, including sales growth for
Häagen-Dazs and Wanchai Ferry brands in China, and increased sales of Old El Paso and Latina in
Australia. Latin America net sales increased 16 percent due to net price realization and the sales
volume recovery in Argentina after a fire destroyed our La Salteña manufacturing facility in fiscal
2008.
Segment operating profit for fiscal 2010 declined 17 percent to $219 million from $264 million in
fiscal 2009, reflecting unfavorable foreign currency effects and a 31 percent increase in
advertising and media expense, partially offset by favorable net price realization.
In January 2010, the Venezuelan government devalued the Bolivar by resetting the official exchange
rate. The effect of the devaluation was a $14 million foreign exchange loss, primarily on the
revaluation of non-Bolivar monetary balances in Venezuela. We continue to use the official exchange
rate to remeasure the financial statements of our Venezuelan operations, as we intend to remit
dividends solely through the government-operated Foreign Exchange Administration Board (CADIVI).
The devaluation of the Bolivar also reduced the U.S. dollar equivalent of our Venezuelan results of
operations and financial condition, but this did not have a material impact on our results. During
fiscal 2010, Venezuela became a highly inflationary economy, which did not have a material impact
on our results in fiscal 2010.
Segment operating profit for fiscal 2009 declined 3 percent to $264 million, from $270 million in
fiscal 2008, driven by a 14 percentage point decrease due to unfavorable foreign exchange.
Increases in net price realization and mix and volume growth offset increases in supply chain input
costs of $16 million and a 3 percent increase in advertising and media marketing expense.
BAKERIES AND FOODSERVICE SEGMENT
In our Bakeries and Foodservice segment our major product categories are cereals, snacks, yogurt,
unbaked and fully baked frozen dough products, baking mixes, and 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.
Components of net sales growth are shown in the following table:
Components of Bakeries and Foodservice Net Sales Growth
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
Fiscal 2009 |
|
|
vs. 2009 |
|
vs. 2008 |
|
Contributions from volume growth (a) |
|
-8 pts |
|
-6 pts |
Net price realization and mix |
|
-6 pts |
|
7 pts |
Foreign currency exchange |
|
Flat |
|
Flat |
|
Net sales growth |
|
-14 pts |
|
1 pt |
|
|
|
|
(a) |
|
Measured in tons based on the stated weight of our product shipments. |
For fiscal 2010, net sales for our Bakeries and Foodservice segment decreased 14 percent to $1,770
million. The decrease in fiscal 2010 was driven by 8 percentage points of volume decline, including
8 percentage points from divested product lines and a loss of 2 percentage points from an
additional week in fiscal 2009. Net price realization and mix decreased 6 percentage points,
primarily from prices indexed to commodity markets.
For fiscal 2009, net sales for our Bakeries and Foodservice segment increased 1 percent to $2,048
million. The increase in fiscal 2009 was driven by 7 percentage points of net price realization and
mix. This was offset by a 6
29
percentage point decrease in volume, mainly in the Foodservice Distributors and Bakeries and
National Restaurant Accounts channels, including the effects of divested product lines.
Net sales growth for our Bakeries and Foodservice segment by customer channel is shown in the
following tables:
Bakeries and Foodservice Net Sales by Customer Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Foodservice Distributors |
|
$ |
559.8 |
|
|
$ |
574.1 |
|
|
$ |
565.5 |
|
Convenience Stores |
|
|
213.4 |
|
|
|
206.9 |
|
|
|
191.5 |
|
Bakeries and National Restaurant Accounts |
|
|
997.3 |
|
|
|
1,266.8 |
|
|
|
1,264.3 |
|
|
Total |
|
$ |
1,770.5 |
|
|
$ |
2,047.8 |
|
|
$ |
2,021.3 |
|
|
Bakeries and Foodservice Net Sales Percentage Change by Customer Channel
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
vs. 2009 |
|
|
vs. 2008 |
|
|
Foodservice Distributors |
|
|
(2 |
)% |
|
|
2 |
% |
Convenience Stores |
|
|
3 |
|
|
|
8 |
|
Bakeries and National Restaurant Accounts |
|
|
(21 |
) |
|
Flat |
|
|
Total |
|
|
(14 |
)% |
|
|
1 |
% |
|
We realigned our Bakeries and Foodservice customer channels in fiscal 2010 and reclassified
previous years to conform to the current year presentation.
In fiscal 2010, segment operating profit was $250 million, up from $171 million in fiscal 2009. The
increase was due to lower input costs, plant operating performance, and increased grain
merchandising earnings.
Segment operating profit was $171 million in fiscal 2009, up 3 percent from $165 million in fiscal
2008. The increase was due to margin expansion and HMM efforts which offset significant volume
declines and lower grain merchandising activities.
UNALLOCATED CORPORATE ITEMS
Unallocated corporate items include variances to planned corporate overhead expenses, variances to
planned domestic employee benefits and incentives, all stock compensation costs, annual
contributions to the General Mills Foundation, and other items that are not part of our measurement
of segment operating performance. This includes gains and losses from mark-to-market valuation of
certain commodity positions until passed back to our operating segments in accordance with our
policy as discussed in Note 2 of the Consolidated Financial Statements in Item 8 of this report.
For fiscal 2010, unallocated corporate expense totaled $224 million compared to $361 million last
year. In fiscal 2010 we recorded a $7 million net increase in expense related to mark-to-market
valuation of certain commodity positions and grain inventories, compared to a $119 million net
increase in expense last year. Also in fiscal 2010, we recorded a $13 million recovery against a
corporate investment compared to $35 million of write-downs against various investments in fiscal
2009. In fiscal 2009, we recognized a $41 million gain from an insurance settlement.
Unallocated corporate expense totaled $361 million in fiscal 2009 compared to $157 million in
fiscal 2008. The $204 million increase in expense was driven primarily by a $176 million net
increase in expense related to mark-to-market valuations of certain commodity positions and grain
inventories. We also recorded write-downs of $35 million related to various corporate investments
in fiscal 2009, compared to a net gain of $16 million in fiscal 2008,
30
and a $16 million increase in contributions to the General Mills Foundation, offset by a fiscal
2009 gain from an insurance settlement as discussed above under the heading Fiscal 2009
Consolidated Results of Operations.
JOINT VENTURES
In addition to our consolidated operations, we participate in two joint ventures. We have a 50
percent equity interest in CPW, which manufactures and markets ready-to-eat cereal products in more
than 130 countries and republics outside the United States and Canada. CPW also markets cereal bars
in several European countries and manufactures private label cereals for customers in the United
Kingdom. We also have a 50 percent equity interest in HDJ, which manufactures, distributes, and
markets Häagen-Dazs ice cream products and frozen novelties. During fiscal 2008, the 8th Continent
soy milk business was sold.
Our share of after-tax joint venture earnings increased from $92 million in fiscal 2009 to $102
million in fiscal 2010. The increase is mainly due to lower fiscal 2009 earnings which were reduced
by a $6 million deferred income tax valuation allowance.
Our share of after-tax joint venture earnings decreased from $111 million in fiscal 2008 to $92
million in fiscal 2009. In fiscal 2009, earnings were reduced by a $6 million deferred income tax
valuation allowance. In fiscal 2008, earnings included $16 million for our share of a gain on the
sale of a CPW property in the United Kingdom partially offset by restructuring expenses of $8
million. Also, fiscal 2008 results included $2 million for our share of a gain on the sale of the
8th Continent soymilk business.
The change in net sales for each joint venture is set forth in the following table:
Joint Venture Change in Net Sales
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
vs. 2009 |
|
|
vs. 2008 |
|
|
CPW |
|
|
6 |
% |
|
|
5 |
% |
HDJ |
|
|
(4 |
) |
|
|
2 |
|
|
Joint Ventures |
|
|
4 |
% |
|
|
3 |
% |
|
For fiscal 2010, CPW net sales grew by 6 percent due to 4 percentage points of growth from net
price realization and mix, 1 percentage point from favorable foreign exchange and a 1 percentage
point increase in volume, including growth in Russia, Southeast Asia, the Middle East and Latin
America. Net sales for HDJ decreased 4 percent from fiscal 2009 due to an 11 percentage point
decline in volume, partially offset by favorable foreign exchange.
CPW reclassified certain expenses as a reduction to net sales. To conform to the current period
presentation, CPW reduced its previously reported net sales by approximately $150 million in fiscal
2009 and $200 million in 2008. There was no effect on after-tax earnings from joint ventures in our
Consolidated Statements of Earnings.
For fiscal 2009, CPW net sales grew by 5 percent reflecting higher volume and net price
realization, slightly offset by unfavorable foreign currency exchange. Net sales for HDJ increased
2 percent from fiscal 2008 as a result of favorable foreign exchange of 11 percentage points and
positive net price realization, offset by a decrease in volume.
31
Selected cash flows from our joint ventures are set forth in the following table:
Selected Cash Flows from Joint Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
Inflow (Outflow), in Millions |
|
2010 |
|
2009 |
|
2008 |
|
Advances to joint ventures |
|
$ |
(131.0 |
) |
|
$ |
(14.2 |
) |
|
$ |
(20.6 |
) |
Repayments of advances |
|
|
2.9 |
|
|
|
22.4 |
|
|
|
95.8 |
|
Dividends received |
|
|
88.0 |
|
|
|
68.5 |
|
|
|
108.7 |
|
|
IMPACT OF INFLATION
We have experienced significant input cost volatility since fiscal 2006. Our gross margin
performance in fiscal 2010 reflects the impact of modest input cost deflation, primarily on
commodities inputs, following three consecutive years of significant input cost inflation. We
expect the cost of commodities and energy to increase in fiscal 2011. We attempt to minimize the
effects of inflation through planning and operating practices. Our risk management practices are
discussed in Item 7A of this report.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010 (collectively, the Act) was signed into law in March 2010. The Act
codifies health care reforms with staggered effective dates from 2010 to 2018. Many provisions in
the Act require the issuance of additional guidance from various government agencies. Because the
Act does not take effect fully until future years, we do not expect the Act to have a material
impact on our fiscal 2011 results of operations. Given the complexity of the Act, the extended time
period over which the reforms will be implemented, and the unknown impact of future regulatory
guidance, the full impact of the Act on future periods will not be known until those regulations
are adopted.
LIQUIDITY
The primary source of our liquidity is cash flow from operations. Over the most recent three-year
period, our operations have generated $5.7 billion in cash. A substantial portion of this operating
cash flow has been returned to stockholders through share repurchases and dividends. We also use
this source of liquidity to fund our capital expenditures. We typically use a combination of cash,
notes payable, and long-term debt to finance acquisitions and major capital expansions.
Cash Flows from Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
2009 |
|
2008 |
|
Net earnings, including earnings attributable to
noncontrolling interests |
|
$ |
1,535.0 |
|
|
$ |
1,313.7 |
|
|
$ |
1,318.1 |
|
Depreciation and amortization |
|
|
457.1 |
|
|
|
453.6 |
|
|
|
459.2 |
|
After-tax earnings from joint ventures |
|
|
(101.7 |
) |
|
|
(91.9 |
) |
|
|
(110.8 |
) |
Stock-based compensation |
|
|
107.3 |
|
|
|
117.7 |
|
|
|
133.2 |
|
Deferred income taxes |
|
|
22.3 |
|
|
|
215.8 |
|
|
|
98.1 |
|
Tax benefit on exercised options |
|
|
(114.0 |
) |
|
|
(89.1 |
) |
|
|
(55.7 |
) |
Distributions of earnings from joint ventures |
|
|
88.0 |
|
|
|
68.5 |
|
|
|
108.7 |
|
Pension and other postretirement benefit plan contributions |
|
|
(17.2 |
) |
|
|
(220.3 |
) |
|
|
(14.2 |
) |
Pension and other postretirement benefit plan (income) expense |
|
|
(37.9 |
) |
|
|
(27.5 |
) |
|
|
5.5 |
|
Divestitures (gain), net |
|
|
|
|
|
|
(84.9 |
) |
|
|
|
|
Gain on insurance settlement |
|
|
|
|
|
|
(41.3 |
) |
|
|
|
|
Restructuring, impairment, and other exit costs (income) |
|
|
23.4 |
|
|
|
31.3 |
|
|
|
(1.7 |
) |
Changes in current assets and liabilities |
|
|
143.4 |
|
|
|
176.9 |
|
|
|
(126.7 |
) |
Other, net |
|
|
75.5 |
|
|
|
5.7 |
|
|
|
(83.8 |
) |
|
Net cash provided by operating activities |
|
$ |
2,181.2 |
|
|
$ |
1,828.2 |
|
|
$ |
1,729.9 |
|
|
In fiscal 2010, our operations generated $2,181 million of cash compared to $1,828 million in
fiscal 2009. The $353 million increase primarily reflects the $221 million increase in net
earnings, including earnings attributable to
noncontrolling interests. Fiscal 2009 cash flows from operations were also affected by several
transactions. We
32
voluntarily contributed $200 million to our principal domestic pension plans. In
addition, net earnings, including earnings attributable to noncontrolling interests for fiscal 2009
included an $85 million net gain on the sale of certain product lines and a $41 million gain on the
insurance settlement covering the loss at our La Salteña pasta manufacturing facility in Argentina.
Accounts payable generated $186 million more cash year-over-year primarily due to an increase in
SG&A expense and shifts in timing. Accounts receivable was a $203 million increased use of cash
primarily driven by sales timing shifts. Inventory used $11 million less cash in fiscal 2010.
We strive to grow core working capital at or below our growth in net sales. For fiscal 2010, core
working capital increased 3 percent, compared to net sales growth of 1 percent which included the
effects of one less week in fiscal 2010. In fiscal 2009, core working capital declined 1 percent,
compared to net sales growth of 8 percent, and in fiscal 2008, core working capital grew 12 percent
compared to net sales growth of 10 percent.
In fiscal 2009, our operations generated $1,828 million of cash compared to $1,730 million in
fiscal 2008, primarily reflecting a $304 million reduction in the use of working capital in fiscal
2009, partially offset by a $200 million voluntary contribution made to our principal domestic
pension plans.
33
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
2009 |
|
2008 |
|
Purchases of land, buildings, and equipment |
|
$ |
(649.9 |
) |
|
$ |
(562.6 |
) |
|
$ |
(522.0 |
) |
Acquisitions |
|
|
|
|
|
|
|
|
|
|
0.6 |
|
Investments in affiliates, net |
|
|
(130.7 |
) |
|
|
5.9 |
|
|
|
64.6 |
|
Proceeds from disposal of land, buildings, and equipment |
|
|
7.4 |
|
|
|
4.1 |
|
|
|
25.9 |
|
Proceeds from divestitures of product lines |
|
|
|
|
|
|
244.7 |
|
|
|
|
|
Proceeds from insurance settlement |
|
|
|
|
|
|
41.3 |
|
|
|
|
|
Other, net |
|
|
52.0 |
|
|
|
(22.3 |
) |
|
|
(11.5 |
) |
|
Net cash used by investing activities |
|
$ |
(721.2 |
) |
|
$ |
(288.9 |
) |
|
$ |
(442.4 |
) |
|
In fiscal 2010, cash used by investing activities increased by $432 million from fiscal 2009
primarily due to $245 million of proceeds from the sale of certain product lines in fiscal 2009 and
the $41 million received in fiscal 2009 related to insurance proceeds from the settlement with the
insurance carrier covering the loss at our La Salteña pasta manufacturing facility in Argentina. We
also invested $131 million in affiliates in fiscal 2010, mainly our CPW joint venture, to repay
local borrowings.
Capital expenditures in fiscal 2010 increased $87 million from fiscal 2009 as we increased
manufacturing capacity for cereal, snack bars, and yogurt products.
In fiscal 2009, cash used by investing activities decreased by $154 million from fiscal 2008
primarily due to proceeds of $245 million from the sale of certain product lines. We also received
insurance proceeds of $41 million in fiscal 2009 from the settlement with the insurance carrier
covering the loss at our La Salteña pasta manufacturing facility in Argentina. These proceeds
offset the capital expenditures required to replace the manufacturing facility that was destroyed
by fire in fiscal 2008.
We expect capital expenditures to increase to approximately $700 million in fiscal 2011, including
initiatives that will: increase manufacturing capacity for cereals and Yoplait yogurt; continue HMM
initiatives throughout the supply chain; and expand International production capacity for Wanchai
Ferry and Häagen-Dazs products.
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
2009 |
|
2008 |
|
Change in notes payable |
|
$ |
235.8 |
|
|
$ |
(1,390.5 |
) |
|
$ |
946.6 |
|
Issuance of long-term debt |
|
|
|
|
|
|
1,850.0 |
|
|
|
1,450.0 |
|
Payment of long-term debt |
|
|
(906.9 |
) |
|
|
(370.3 |
) |
|
|
(1,623.4 |
) |
Settlement of Lehman Brothers forward purchase contract |
|
|
|
|
|
|
|
|
|
|
750.0 |
|
Repurchase of Series B-1 limited membership interests in GMC |
|
|
|
|
|
|
|
|
|
|
(843.0 |
) |
Repurchase of General Mills Capital, Inc. preferred stock |
|
|
|
|
|
|
|
|
|
|
(150.0 |
) |
Proceeds from sale of Class A limited membership interests in GMC |
|
|
|
|
|
|
|
|
|
|
92.3 |
|
Proceeds from common stock issued on exercised options |
|
|
388.8 |
|
|
|
305.2 |
|
|
|
191.4 |
|
Tax benefit on exercised options |
|
|
114.0 |
|
|
|
89.1 |
|
|
|
55.7 |
|
Purchases of common stock for treasury |
|
|
(691.8 |
) |
|
|
(1,296.4 |
) |
|
|
(1,432.4 |
) |
Dividends paid |
|
|
(643.7 |
) |
|
|
(579.5 |
) |
|
|
(529.7 |
) |
Other, net |
|
|
|
|
|
|
(12.1 |
) |
|
|
(0.5 |
) |
|
Net cash used by financing activities |
|
$ |
(1,503.8 |
) |
|
$ |
(1,404.5 |
) |
|
$ |
(1,093.0 |
) |
|
Net cash used by financing activities increased by $99 million in fiscal 2010.
34
In May 2010, we paid $437 million to repurchase in a cash tender offer $400 million of our
previously issued debt. We repurchased $221 million of our 6.0 percent notes due 2012 and $179
million of our 5.65 percent notes due 2012. As a result of the repurchase, we recorded interest
expense of $40 million which represented the premium paid in the tender offer, the write-off of the
remaining discount and unamortized fees, and the settlement of related swaps. We issued commercial
paper to fund the repurchase.
During fiscal 2010, we repaid $88 million of long-term bank debt held by wholly owned foreign
subsidiaries.
In January 2009, we issued $1.2 billion aggregate principal amount of 5.65 percent notes due 2019.
In August 2008, we issued $700 million aggregate principal amount of 5.25 percent notes due 2013.
The proceeds of these notes were used to repay a portion of our outstanding commercial paper.
Interest on these notes is payable semi-annually in arrears. These notes may be redeemed at our
option at any time for a specified make-whole amount. These notes are senior unsecured,
unsubordinated obligations that include a change of control repurchase provision.
In June 2010, subsequent to our fiscal 2010 year-end, we issued $500.0 million aggregate principal
amount of 5.4 percent notes due 2040. The significant terms of these notes are similar to our
previously issued notes.
On October 15, 2007, we settled the forward contract established with Lehman Brothers in October
2004 in conjunction with the issuance by Lehman Brothers of $750 million of notes that were
mandatorily exchangeable for shares of our common stock. In settlement of that forward contract, we
issued 29 million shares of our common stock and received $750 million in cash from Lehman
Brothers. We used the cash to reduce outstanding commercial paper balances.
On August 7, 2007, we repurchased for a net amount of $843 million all of the outstanding Series
B-1 Interests in GMC as part of a required remarketing of those interests. The purchase price
reflected the Series B-1 Interests original capital account balance of $835 million and $8 million
of capital account appreciation attributable and paid to the third-party holder of the Series B-1
Interests. The capital appreciation paid to the third-party holder of the Series B-1 Interests was
recorded as a reduction to retained earnings, a component of stockholders equity, on our
Consolidated Balance Sheets, and reduced net earnings available to common stockholders in our basic
and diluted EPS calculations.
In April 2007, we issued $1.15 billion of floating rate convertible senior notes. In April 2008,
holders of $1.14 billion of those notes tendered them to us for repurchase. In April 2009, we
repurchased all of the remaining outstanding notes. We issued commercial paper to fund the
repurchases.
We and the third-party holder of all of GMCs outstanding Class A limited membership interests
(Class A Interests) agreed to reset, effective on June 28, 2007, the preferred rate of return
applicable to the Class A Interests to the sum of three-month LIBOR plus 65 basis points. On June
28, 2007, we sold $92 million of additional Class A Interests to the same third party. There was no
gain or loss associated with these transactions. As of May 30, 2010, the carrying value of all
outstanding Class A Interests on our Consolidated Balance Sheets was $245 million, and the capital
account balance of the Class A Interests upon which preferred distributions are calculated was $248
million.
On June 28, 2007, we repurchased for $150 million all of the outstanding Series A preferred stock
of our subsidiary General Mills Capital, Inc. using proceeds from the sale of the Class A Interests
and commercial paper. There was no gain or loss associated with this repurchase.
During fiscal 2010, we repurchased 21 million shares of our common stock for an aggregate purchase
price of $692 million. During fiscal 2009, we repurchased 40 million shares of our common stock for
an aggregate purchase price of $1,296 million. During fiscal 2008, we repurchased 48 million shares
of our common stock for an aggregate purchase price of $1,385 million. In fiscal 2007, our Board of
Directors authorized the repurchase of up to 150 million shares of our common stock. On June 28,
2010, our Board of Directors authorized the repurchase of up to 100 million shares of our common
stock. The fiscal 2011 authorization terminated and replaced the fiscal 2007 authorization.
Purchases under the authorization can be made in the open market or in privately negotiated
transactions, including the use of call options and other derivative instruments, Rule 10b5-1
trading plans, and accelerated repurchase programs. The authorization has no specified termination
date.
35
Dividends paid in fiscal 2010 totaled $644 million, or $0.96 per share, a 12 percent per share
increase from fiscal 2009. Dividends paid in fiscal 2009 totaled $580 million, or $0.86 per share,
a 10 percent per share increase from fiscal 2008 dividends of $0.78 per share. On June 28, 2010,
our Board of Directors approved a dividend increase to an annual rate of $1.12 per share, a 17
percent increase from the rate paid in fiscal 2010.
CAPITAL RESOURCES
Total capital consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
May 31, |
In Millions |
|
2010 |
|
2009 |
|
Notes payable |
|
$ |
1,050.1 |
|
|
$ |
812.2 |
|
Current portion of long-term debt |
|
|
107.3 |
|
|
|
508.5 |
|
Long-term debt |
|
|
5,268.5 |
|
|
|
5,754.8 |
|
|
Total debt |
|
|
6,425.9 |
|
|
|
7,075.5 |
|
Noncontrolling interests |
|
|
245.1 |
|
|
|
244.2 |
|
Stockholders equity |
|
|
5,402.9 |
|
|
|
5,172.3 |
|
|
Total capital |
|
$ |
12,073.9 |
|
|
$ |
12,492.0 |
|
|
The decrease in total capital from fiscal 2009 to fiscal 2010 was primarily due to a decrease in
current and long-term debt, partially offset by an increase in notes payable as a result of our
debt tender offer.
The following table details the fee-paid committed and uncommitted credit lines we had available as
of May 30, 2010:
|
|
|
|
|
In Billions |
|
Amount |
|
|
Credit facility expiring: |
|
|
|
|
October 2010 |
|
$ |
1.1 |
|
October 2012 |
|
|
1.8 |
|
|
Total committed credit facilities |
|
|
2.9 |
|
Uncommitted credit facilities |
|
|
0.3 |
|
|
Total committed and uncommitted credit facilities |
|
$ |
3.2 |
|
|
To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding
short-term borrowings. Commercial paper is a continuing source of short-term financing. We issue
commercial paper in the United States and Europe. Our commercial paper borrowings are supported by
$2.9 billion of fee-paid committed credit lines, consisting of a $1.8 billion facility expiring in
October 2012 and a $1.1 billion facility expiring in October 2010. We also have $0.3 billion in
uncommitted credit lines that support our foreign operations. As of May 30, 2010, there were no
amounts outstanding on the fee-paid committed credit lines and $76 million was drawn on the
uncommitted lines. The credit facilities contain several covenants, including a requirement to
maintain a fixed charge coverage ratio of at least 2.5.
Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests
contain restrictive covenants. As of May 30, 2010, we were in compliance with all of these
covenants.
We have $107.3 million of long-term debt maturing in the next 12 months that is classified as
current. 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 of May 30, 2010, our total debt, including the impact of derivative instruments designated as
hedges, was 75 percent in fixed-rate and 25 percent in floating-rate instruments, compared to 88
percent in fixed-rate and 12 percent in floating-rate instruments on May 31, 2009. The change in
the fixed-rate and floating-rate percentages was driven
36
by the execution of fixed-to-floating rate swaps during fiscal 2010 and refinancing of fixed-rate
debt with commercial paper.
We have an effective shelf registration statement on file with the Securities and Exchange
Commission (SEC) covering the sale of debt securities. The shelf registration statement will expire
in December 2011.
Growth in return on average total capital is one of our key performance measures (see the Non-GAAP
Measures section below for our discussion of this measure, which is not defined by GAAP). Return
on average total capital increased from 12.3 percent in fiscal 2009 to 13.8 percent in fiscal 2010
primarily due to increased earnings and improvements in core working capital. We also believe that
the ratio of fixed charge coverage and the ratio of operating cash flow to debt are important
measures of our financial strength. Our fixed charge coverage ratio in fiscal 2010 was 6.42
compared to 5.33 in fiscal 2009. The measure increased from fiscal 2009 as earnings before income
taxes and after-tax earnings from joint ventures increased by $262 million and fixed charges
decreased by $40 million, driven mainly by lower interest expense. Our operating cash flow to debt
ratio increased 8.1 points to 33.9 percent in fiscal 2010, driven by an increase in cash flows from
operations and a decrease in our year-end debt balance.
Currently, Standard and Poors (S&P) has ratings of BBB+ on our long-term debt and A-2 on our
commercial paper. Moodys Investors Services (Moodys) has ratings of Baa1 for our long-term debt
and P-2 for our commercial paper. Fitch Ratings rates our long-term debt BBB+ and our commercial
paper F-2. These ratings are not a recommendation to buy, sell or hold securities, are subject to
revision or withdrawal at any time by the rating organization, and should be evaluated
independently of any other rating.
In April 2002, we contributed assets to our subsidiary GMC. In exchange for the contribution of
these assets, GMC issued its managing membership interest and its limited preferred membership
interests to certain of our wholly owned subsidiaries. We continue to hold the entire managing
membership interest, and therefore direct the operations of GMC.
The third-party holder of the Class A Interests in GMC receives quarterly preferred distributions
from available net income based on the application of a floating preferred return rate, currently
equal to the sum of three-month LIBOR plus 65 basis points. The preferred return rate of the Class
A Interests is adjusted every five years through a negotiated agreement between the Class A
Interest holder and GMC, or through a remarketing auction. The next remarketing is scheduled to
occur in June 2012 and thereafter in five-year intervals.
The holder of the Class A Interests may initiate a liquidation of GMC under certain circumstances,
including, without limitation, the bankruptcy of GMC or its subsidiaries, GMCs failure to deliver
the preferred distributions on the Class A Interests, GMCs failure to comply with portfolio
requirements, breaches of certain covenants, lowering of our senior debt rating below either Baa3
by Moodys or BBB- by S&P, and a failed attempt to remarket the Class A Interests as a result of
GMCs failure to assist in such remarketing. In the event of a liquidation of GMC, each member of
GMC will receive the amount of its then current capital account balance. The managing member may
avoid liquidation by exercising its option to purchase the Class A Interests.
We may exercise our 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 unrelated third-party investors 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 May 30, 2010, we have issued guarantees and comfort letters of $538 million for the debt and
other obligations of consolidated subsidiaries, and guarantees and comfort letters of $302 million
for the debt and other obligations of non-consolidated affiliates, mainly CPW. In addition,
off-balance sheet arrangements are generally limited to the future payments under non-cancelable
operating leases, which totaled $315 million as of May 30, 2010.
37
As of May 30, 2010, we had invested in three variable interest entities (VIEs). We have an
interest in a contract manufacturer at our former facility in Geneva, Illinois. We are the primary
beneficiary (PB) and have consolidated this entity. This entity had property and equipment with a
carrying value of $19 million and long-term debt of $21 million as of May 30, 2010. The liabilities
recognized as a result of consolidating this entity do not represent additional claims on our
general assets. We also have an interest in a contract manufacturer in Greece that is a VIE.
Although we are the PB, we have not consolidated this entity because it is not practical to do so
and it is not material to our results of operations, financial condition, or liquidity as of and
for the year ended May 30, 2010. This entity had assets of $7 million and liabilities of $1 million
as of May 30, 2010. We are not the PB of the remaining VIE. Our maximum exposure to loss from the
three VIEs is limited to the $21 million of long-term debt of the contract manufacturer in Geneva,
Illinois and our $2 million equity investment in the VIE of which we are not the PB. We have not
provided financial or other support to these VIEs during the current period nor are there
arrangements related to these VIEs that could require us to provide financial support in the
future.
Our defined benefit plans in the United States are subject to the requirements of the Pension
Protection Act (PPA). The PPA revised the basis and methodology for determining defined benefit
plan minimum funding requirements as well as maximum contributions to and benefits paid from
tax-qualified plans. Most of these provisions were applicable to our domestic defined benefit
pension plans in fiscal 2010 on a phased-in basis. The PPA may ultimately require us to make
additional contributions to our domestic plans. We did not make a contribution to our principal
defined benefit pension plans in fiscal 2010. Although not required under the provisions of the
PPA, we voluntarily contributed $200 million to our principal defined benefit plans in fiscal 2009.
We do not expect to make any contributions to our domestic plans in fiscal 2011. Actual fiscal 2011
contributions could exceed our current projections, and may be influenced by our decision to
undertake discretionary funding of our benefit trusts or by changes in regulatory requirements.
Additionally, our projections concerning timing of the PPA funding requirements are subject to
change and may be influenced by factors such as general market conditions affecting trust asset
performance, interest rates, and our future decisions regarding certain elective provisions of the
PPA.
The following table summarizes our future estimated cash payments under existing contractual
obligations, including payments due by period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 and |
|
In Millions |
|
Total |
|
|
2011 |
|
|
2012 - 13 |
|
|
2014 - 15 |
|
|
Thereafter |
|
|
Long-term debt (a) |
|
$ |
5,371.0 |
|
|
$ |
105.9 |
|
|
$ |
1,662.6 |
|
|
$ |
1,452.3 |
|
|
$ |
2,150.2 |
|
Accrued interest |
|
|
136.5 |
|
|
|
136.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases (b) |
|
|
315.3 |
|
|
|
87.4 |
|
|
|
110.7 |
|
|
|
53.9 |
|
|
|
63.3 |
|
Capital leases |
|
|
4.6 |
|
|
|
1.7 |
|
|
|
2.4 |
|
|
|
0.5 |
|
|
|
|
|
Purchase obligations (c) |
|
|
2,358.5 |
|
|
|
2,019.2 |
|
|
|
177.5 |
|
|
|
67.8 |
|
|
|
94.0 |
|
|
Total contractual
obligations |
|
|
8,185.9 |
|
|
|
2,350.7 |
|
|
|
1,953.2 |
|
|
|
1,574.5 |
|
|
|
2,307.5 |
|
Other long-term
obligations (d) |
|
|
2,466.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term obligations |
|
$ |
10,652.0 |
|
|
$ |
2,350.7 |
|
|
$ |
1,953.2 |
|
|
$ |
1,574.5 |
|
|
$ |
2,307.5 |
|
|
|
|
|
(a) |
|
Amounts represent the expected cash payments of our long-term debt and do not include $4
million for capital leases or $1 million for net unamortized bond premiums and discounts and
fair value adjustments. |
(b) |
|
Operating leases represents the minimum rental commitments under non-cancelable operating
leases. |
(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 interest rate and equity swaps with a payable position to the
counterparty was $180 million as of May 30, 2010, 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 uncertain income tax positions, accrued compensation and
benefits, including the |
38
|
|
|
|
|
underfunded status of certain of our defined benefit pension, other
postretirement, and postemployment plans, and miscellaneous liabilities. We expect to pay $18
million of benefits from our unfunded postemployment benefit plans and $13 million of deferred
compensation in fiscal 2011. We are unable to reliably estimate the amount of these payments
beyond fiscal 2011. As of May 30, 2010, our total liability for uncertain tax positions and the
associated accrued interest and penalties was $728 million. We expect to pay approximately $425
million of tax liabilities related to uncertain tax positions and accrued interest in the next
12 months, including a portion of our potential liability for the matter resolved by the U.S.
Court of Appeals discussed within this MD&A. While fiscal years 2007 and 2008 are currently
under examination by the Internal Revenue Service (IRS), we are not able to reasonably estimate
the timing of future cash flows beyond 12 months due to uncertainties in the timing of this and
other tax audit outcomes. |
SIGNIFICANT ACCOUNTING ESTIMATES
For a complete description of our significant accounting policies, 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 promotional expenditures, valuation of long-lived
assets, intangible assets, stock-based compensation, income taxes, and defined benefit pension,
other postretirement and postemployment benefits.
Promotional Expenditures
Our promotional activities are conducted through our customers and directly or indirectly with end
consumers. These activities include: payments to customers to perform merchandising activities on
our behalf, such as advertising or in-store displays; discounts to our list prices to lower retail
shelf prices; payments to gain distribution of new products; coupons, contests, and other
incentives; and media and advertising expenditures. The media and advertising expenditures are
recognized as expense when the advertisement airs. The cost of payments to customers and other
consumer activities are recognized as the related revenue is recorded, which generally precedes the
actual cash expenditure. The recognition of these costs requires estimation of customer
participation and performance levels. These estimates are made based on the forecasted customer
sales, the timing and forecasted costs of promotional activities, and other factors. Differences
between estimated expenses and actual costs are normally insignificant and are recognized as a
change in management estimate in a subsequent period. Our accrued trade, coupon, and consumer
marketing liabilities were $555 million as of May 30, 2010, and $474 million as of May 31, 2009.
Because our total promotional expenditures (including amounts classified as a reduction of
revenues) are significant, if our estimates are inaccurate we would have to make adjustments in
subsequent periods that could have a material effect on our results of operations.
Valuation of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss
would be recognized when estimated undiscounted future cash flows from the operation and
disposition of the asset group are less than the carrying amount of the asset group. Asset groups
have identifiable cash flows independent of other asset groups. Measurement of an impairment loss
would be based on the excess of the carrying amount of the asset group over its fair value. Fair
value is measured using discounted cash flows or independent appraisals, as appropriate.
Intangible Assets
Goodwill is not subject to amortization and is tested for impairment annually and whenever events
or changes in circumstances indicate that impairment may have occurred. Impairment testing is
performed for each of our reporting units. We compare the carrying value of a reporting unit,
including goodwill, to the fair value of the unit. Carrying value is based on the assets and
liabilities associated with the operations of that reporting unit, which often requires allocation
of shared or corporate items among reporting units. If the carrying amount of a reporting unit
exceeds its fair value, we revalue all assets and liabilities of the reporting unit, excluding
goodwill, to determine if the fair value of the net assets is greater than the net assets including
goodwill. If the fair value of the net assets is less than the net assets including goodwill,
impairment has occurred. Our estimates of fair value are determined based on a discounted cash flow
model. Growth rates for sales and profits are determined using inputs from our annual long-range
planning process. We also make estimates of discount rates, perpetuity growth assumptions, market
comparables, and other factors.
39
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.
Our indefinite-lived intangible assets, mainly intangible assets primarily associated with the
Pillsbury, Totinos, Progresso, Green Giant, Old El Paso, and Häagen-Dazs brands, are also tested
for impairment annually and whenever events or changes in circumstances indicate that their
carrying value may not be recoverable. We performed our fiscal 2010 assessment of our brand
intangibles as of December 1, 2009. Our estimate of the fair value of the brands was based on a
discounted cash flow model using inputs which included: projected revenues from our annual
long-range plan; assumed royalty rates that could be payable if we did not own the brands; and a
discount rate. As of our assessment date, there was no impairment of any of our intangibles as
their related fair values were substantially in excess of the carrying values.
As of May 30, 2010, we had $10.3 billion of goodwill and indefinite-lived intangible assets. While
we currently believe that the fair value of each intangible exceeds its carrying value and that
those intangibles so classified 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 significant impairment losses and amortization
expense.
Stock-based Compensation
The valuation of stock options is a significant accounting estimate which 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.
We estimate our future stock price volatility using the historical volatility over the expected
term of the option, excluding time periods of volatility we believe a marketplace participant would
exclude in estimating our stock price volatility. For the fiscal 2010 grants, we have excluded
historical volatility for fiscal 2002 and prior, primarily because volatility driven by our
acquisition of The Pillsbury Company (Pillsbury) in fiscal 2002 does not reflect what we believe to
be expected future volatility. We also have considered, but did not use, implied volatility in our
estimate, because trading activity in options on our stock, especially those with tenors of greater
than 6 months, is insufficient to provide a reliable measure of expected volatility. If all other
assumptions are held constant, a one percentage point increase in our fiscal 2010 volatility
assumption would increase the grant-date fair value of our fiscal 2010 option awards by 7 percent.
Our expected term represents the period of time that options granted are expected to be outstanding
based on historical data to estimate option exercise and employee termination within the valuation
model. Separate groups of employees have similar historical exercise behavior and therefore were
aggregated into a single pool for valuation purposes. The weighted-average expected term for all
employee groups is presented in the table below. An increase in the expected term by 1 year,
leaving all other assumptions constant, would change the grant date fair value by less than 1
percent.
The risk-free interest rate for periods during the expected term of the options is based on the
U.S. Treasury zero-coupon yield curve in effect at the time of grant.
40
The estimated fair values of stock options granted and the assumptions used for the Black-Scholes
option-pricing model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Estimated fair values of stock options granted |
|
$ |
3.20 |
|
|
$ |
4.70 |
|
|
$ |
5.28 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
3.7 |
% |
|
|
4.4 |
% |
|
|
5.1 |
% |
Expected term |
|
8.5 years |
|
8.5 years |
|
8.5 years |
Expected volatility |
|
|
18.9 |
% |
|
|
16.1 |
% |
|
|
15.6 |
% |
Dividend yield |
|
|
3.4 |
% |
|
|
2.7 |
% |
|
|
2.7 |
% |
|
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. However, these differences can
impact the classification of cash tax benefits realized upon exercise of stock options, as
explained in the following two paragraphs. Furthermore, 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 a financing cash flow. The actual impact on future years
financing cash flow 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 are credited to additional paid-in capital within the Consolidated
Balance Sheets. Realized shortfall tax benefits (amounts which are less than that previously
recognized in earnings) are first offset against the cumulative balance of windfall tax benefits,
if any, and then charged directly to income tax expense, potentially resulting in volatility in our
consolidated effective income tax rate. We calculated a cumulative amount of windfall tax benefits
from post-1995 fiscal years for the purpose of accounting for future shortfall tax benefits and
currently have sufficient cumulative windfall tax benefits to absorb projected arising shortfalls,
such that we do not currently expect future earnings to be affected by this provision. However, as
employee stock option exercise behavior is not within our control, it is possible that materially
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 judgment related to the
expected ultimate resolution of uncertain tax positions will affect earnings in the quarter of such
change.
Annually we file more than 350 income tax returns in approximately 100 global taxing jurisdictions.
A number of years may elapse before an uncertain tax position is audited and finally resolved.
While it is often difficult to predict the final outcome or the timing of resolution of any
particular uncertain tax position, we believe that our liabilities for income taxes reflect the
most likely outcome. We adjust these liabilities, as well as the related interest, in light of
changing facts and circumstances. Settlement of any particular position would usually require the
use of cash.
The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing
jurisdictions include the United States (federal and state) and Canada. We are no longer subject to
United States federal examinations by the IRS for fiscal years before 2002.
41
The IRS has concluded its field examination of our 2006 and prior federal tax years, which resulted
in payments of $18 million in fiscal 2009 and $56 million in fiscal 2008 to cover the additional
U.S. income tax liability plus interest related to adjustments during these audit cycles. The IRS
also proposed additional adjustments for the fiscal 2002 to 2006 audit cycles related to the amount
of capital loss and depreciation and amortization we reported as a result of our sale of
noncontrolling interests in our GMC subsidiary. The IRS has proposed adjustments that effectively
eliminate most of the tax benefits associated with this transaction. We believe our positions are
supported by substantial technical authority and are vigorously defending our positions. We are
currently in negotiations with the IRS Appeals Division for fiscal 2002 to 2006. Our potential
liability for this matter is significant. We have determined that a portion of this matter should
be included as a tax liability and have accordingly included it in our total liabilities for
uncertain tax positions as disclosed in Note 14 to our Consolidated Financial Statements included
in Item 8 of this report. The IRS initiated its audit of our fiscal 2007 and 2008 tax years during
fiscal 2009.
In the third quarter of fiscal 2008, we recorded an income tax benefit of $31 million as a result
of a favorable U.S. district court decision on an uncertain tax matter. In the third quarter of
fiscal 2009, the U.S. Court of Appeals for the Eighth Circuit issued an opinion reversing the
district court decision. As a result, we recorded $53 million (including interest) of income tax
expense related to the reversal of cumulative income tax benefits from this uncertain tax matter
recognized in fiscal years 1992 through 2008. We expect to make cash tax and interest payments of
approximately $32 million in connection with this matter.
As of May 30, 2010, our total liability for uncertain tax positions and the associated accrued
interest and penalties was $728 million. We expect to pay approximately $425 million of tax
liabilities related to uncertain tax positions and accrued interest in the next 12 months,
including a portion of our potential liability for the matter resolved by the IRS Appeals Division
and the U.S. Court of Appeals for the Eighth Circuit as discussed in the preceding paragraphs.
While fiscal years 2007 and 2008 are currently under examination by the IRS, we are not able to
reasonably estimate the timing of future cash flows beyond 12 months due to uncertainties in the
timing of this and other tax audit outcomes.
Various tax examinations by United States state taxing authorities could be conducted for any open
tax year, which vary by jurisdiction, but are generally from 3 to 5 years. Currently, several state
examinations are in progress. The Canada Revenue Agency is conducting an audit of our income tax
returns in Canada for fiscal years 2003 (which is our earliest tax year still open for examination)
through 2005. We do not anticipate that any United States state tax or Canadian tax adjustments
will have a significant impact on our financial position or results of operations.
Defined Benefit Plans
Defined Benefit Pension Plans
We have defined benefit pension plans covering most domestic, Canadian, and United Kingdom
employees. Benefits for salaried employees are based on length of service and final average
compensation. Benefits for hourly employees include various monthly amounts for each year of
credited service. Our funding policy is consistent with the requirements of applicable laws. We
made $200 million of voluntary contributions to our principal domestic plans in fiscal 2009. We did
not make any contributions in fiscal 2010, and we do not expect to be required to make any
contributions in fiscal 2011. Our principal domestic retirement plan covering salaried employees
has a provision that any excess pension assets would be allocated to active participants if the
plan is terminated within five years of a change in control.
Other Postretirement Benefit Plans
We also sponsor plans that provide health care benefits to the majority of our domestic and
Canadian retirees. The salaried health care benefit plan is contributory, with retiree
contributions based on years of service. We make decisions to fund related trusts for certain
employees and retirees on an annual basis. We did not make voluntary contributions to these plans
in fiscal 2010. The Patient Protection and Affordable Care Act, as modified by the Health Care and
Education Reconciliation Act of 2010, was enacted in March 2010. The effect of the Act, including
possible modifications to provider plans, has not yet been fully evaluated, but could affect the
future cost of our benefit plans.
42
Postemployment Benefit Plans
Under certain circumstances, we also provide accruable benefits to former or inactive employees in
the United States, Canada, and Mexico, and members of our Board of Directors, including severance
and certain other benefits payable upon death. We recognize an obligation for any of these benefits
that vest or accumulate with service. Postemployment benefits that do not vest or accumulate with
service (such as severance based solely on annual pay rather than years of service) are charged to
expense when incurred. Our postemployment benefit plans are unfunded.
We recognize benefits provided during retirement or following employment over the plan
participants active working life. 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 the 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.
The investment objective for our defined benefit pension and other postretirement benefit plans is
to secure the benefit obligations to participants at a reasonable cost to us. Our goal is to
optimize the long-term return on plan assets at a moderate level of risk. The defined benefit
pension and other postretirement portfolios are broadly diversified across asset classes. Within
asset classes, the portfolios are further diversified across investment styles and investment
organizations. For the defined benefit pension and other postretirement benefit plans, the
long-term investment policy allocations are: 30 percent to equities in the United States; 20
percent to international equities; 10 percent to private equities; 30 percent to fixed income; and
10 percent to real assets (real estate, energy, and timber). The actual allocations to these asset
classes may vary tactically around the long-term policy allocations based on relative market
valuations.
Our historical investment returns (compound annual growth rates) for our United States defined
benefit pension and other postretirement plan assets were a 17 percent gain in the 1 year period
ended May 30, 2010, and returns of 5 percent, 6 percent, 9 percent, and 10 percent for the 5, 10,
15, and 20 year periods ended May 30, 2010.
Our principal defined benefit pension and other postretirement plans in the United States have an
expected return on plan assets of 9.6 percent. On a weighted-average basis, the expected rate of
return for all defined benefit plans was 9.55 percent for fiscal 2010, 9.55 percent for fiscal
2009, and 9.56 percent for fiscal 2008.
Lowering the expected long-term rate of return on assets by 50 basis points would increase our net
pension and postretirement expense by $23 million for fiscal 2011. 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
Our discount rate assumptions are determined annually as of the last day of our fiscal year for all
of our defined benefit pension, other postretirement, and postemployment benefit plan obligations.
We also use the same discount rates to determine defined benefit pension, other postretirement, and
postemployment benefit plan income and expense for the following fiscal year. We work with our
actuaries to determine the timing and amount of expected future cash outflows to plan participants
and, using the top quartile of AA-rated corporate bond yields, 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.
43
Our weighted-average discount rates were as follows:
Weighted-Average Discount Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined |
|
|
Other |
|
|
|
|
|
|
Benefit |
|
|
Postretirement |
|
|
Postemployment |
|
|
|
Pension |
|
|
Benefit |
|
|
Benefit |
|
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Obligations as of
May 30, 2010, and
fiscal 2011 expense |
|
|
5.85 |
% |
|
|
5.80 |
% |
|
|
5.12 |
% |
Obligations as of
May 31, 2009, and
fiscal 2010 expense |
|
|
7.49 |
% |
|
|
7.45 |
% |
|
|
7.06 |
% |
Fiscal 2009 expense |
|
|
6.88 |
% |
|
|
6.90 |
% |
|
|
6.64 |
% |
|
Lowering the discount rates by 50 basis points would increase our net defined benefit pension,
other postretirement, and postemployment benefit plan expense for fiscal 2011 by approximately $31
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.
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 9.0 percent for all retirees.
Rates are graded down annually until the ultimate trend rate of 5.2 percent is reached in 2019 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.
A one percentage point change in the health care cost trend rate would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
One |
|
|
One |
|
|
|
Percentage |
|
|
Percentage |
|
|
|
Point |
|
|
Point |
|
In Millions |
|
Increase |
|
|
Decrease |
|
|
Effect on the aggregate of the service and
interest cost components in fiscal 2011 |
|
$ |
7.9 |
|
|
$ |
(6.8 |
) |
Effect on the other postretirement accumulated
benefit obligation as of May 30, 2010 |
|
|
96.7 |
|
|
|
(85.0 |
) |
|
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 15 years, resulting in at least the minimum amortization required
being recorded.
Financial Statement Impact
In fiscal 2010, we recorded net defined benefit pension, other postretirement, and postemployment
benefit plan income of $11 million compared to $4 million of income in fiscal 2009 and $19 million
of expense in fiscal 2008. As of May 30, 2010, we had cumulative unrecognized actuarial net losses
of $1.4 billion on our defined benefit pension plans and $225 million on our postretirement benefit
plans, mainly as the result of declines in the values of plan assets. These unrecognized actuarial
net losses will result in decreases in our future pension income and increases in postretirement
expense since they currently exceed the corridors defined by GAAP.
44
We use the Retirement Plans (RP) 2000 Mortality Table projected forward to our plans measurement
dates to calculate the year-end defined benefit pension, other postretirement, and postemployment
benefit obligations and annual expense.
Actual future net defined benefit pension, other postretirement, 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.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010 was signed into law in March 2010. The Act codifies health care reforms
with staggered effective dates from 2010 to 2018 with many provisions in the Act requiring the
issuance of additional guidance from various government agencies. Estimates of the future impacts
of several of the Acts provisions are incorporated into our postretirement benefit liability
including the elimination of lifetime maximums and the imposition of an excise tax on high cost
health plans. These changes resulted in a $24 million increase in our postretirement benefit
liability as of May 30, 2010. Given the complexity of the Act, the extended time period over which
the reforms will be implemented, and the unknown impact of future regulatory guidance, further
financial impacts to our postretirement benefit liability and related future expense may occur.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB issued new accounting guidance that changes the consolidation model for
variable interest entities (VIEs). The guidance requires companies to qualitatively assess the
determination of the primary beneficiary of a VIE based on whether the company (1) has the power to
direct matters that most significantly impact the VIEs economic performance, and (2) has the
obligation to absorb losses or the right to receive benefits of the VIE that could potentially be
significant to the VIE. The guidance is effective for fiscal years beginning after November 15,
2009, which for us is fiscal 2011. We are currently evaluating the impact of the guidance on our
results of operations and financial position.
NON-GAAP MEASURES
We have included in this report measures of financial performance that are not defined by GAAP.
Each of the measures is used in reporting to our executive management and as a component of the
Board of Directors measurement of our performance for incentive compensation purposes. Management
and the Board of Directors 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 our management or the Board of Directors believes the non-GAAP measure provides
useful information to investors, and any additional 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.
Total Segment Operating Profit
Management and the Board of Directors believe that this measure provides useful information to
investors because it is the profitability measure we use to evaluate segment performance. A
reconciliation of this measure to operating profit, the relevant GAAP measure, is included in Note
16 to the Consolidated Financial Statements in Item 8 of this report.
Diluted EPS Excluding Certain Items Affecting Comparability
Management and the Board of Directors believe that this measure provides useful information to
investors because it is the profitability measure we use to evaluate earnings performance on a
comparable year-over-year basis. The adjustments are either items resulting from infrequently
occurring events or items that, in managements judgment, significantly affect the year-over-year
assessment of operating results.
45
The reconciliation of diluted EPS excluding certain items affecting comparability to diluted EPS,
the relevant GAAP measure, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
EPS Growth |
|
Per Share Data |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
|
|
Diluted earnings per share, as reported |
|
$ |
2.24 |
|
|
$ |
1.90 |
|
|
$ |
1.85 |
|
|
$ |
0.34 |
|
|
$ |
0.05 |
|
Mark-to-market effects (a) |
|
|
0.01 |
|
|
|
0.11 |
|
|
|
(0.05 |
) |
|
|
(0.10 |
) |
|
|
0.16 |
|
Divestitures gain, net (b) |
|
|
|
|
|
|
(0.06 |
) |
|
|
|
|
|
|
0.06 |
|
|
|
(0.06 |
) |
Gain from insurance settlement (c) |
|
|
|
|
|
|
(0.04 |
) |
|
|
|
|
|
|
0.04 |
|
|
|
(0.04 |
) |
Uncertain tax item (d) |
|
|
|
|
|
|
0.08 |
|
|
|
(0.04 |
) |
|
|
(0.08 |
) |
|
|
0.12 |
|
Tax charge - health care reform (e) |
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
0.05 |
|
|
|
|
|
|
|
|
Diluted earnings per share, excluding certain items affecting comparability |
|
$ |
2.30 |
|
|
$ |
1.99 |
|
|
$ |
1.76 |
|
|
$ |
0.31 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
(a) |
|
Net (gain) loss from mark-to-market valuation of certain commodity positions and
grain inventories. |
(b) |
|
Net gain on divestitures of certain product lines. |
(c) |
|
Gain on settlement with insurance carrier covering the loss of a manufacturing facility
in Argentina. |
(d) |
|
Effects of Federal Court decisions on an uncertain tax matter. |
(e) |
|
Enactment date charges related to the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act of 2010, affecting deferred
taxes associated with Medicare Part D subsidies. |
46
Return on Average Total Capital
Management and the Board of Directors believe that this measure provides useful information to
investors because it is important for assessing the utilization of capital and it eliminates
certain items which affect year-to-year comparability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Net earnings attributable to General
Mills |
|
$ |
1,530.5 |
|
|
$ |
1,304.4 |
|
|
$ |
1,294.7 |
|
|
$ |
1,143.9 |
|
|
$ |
1,090.3 |
|
|
|
|
|
Interest, net, after-tax (a) |
|
|
261.1 |
|
|
|
240.8 |
|
|
|
263.8 |
|
|
|
242.9 |
|
|
|
226.5 |
|
|
|
|
|
|
Earnings before interest, after-tax |
|
|
1,791.6 |
|
|
|
1,545.2 |
|
|
|
1,558.5 |
|
|
|
1,386.8 |
|
|
|
1,316.8 |
|
|
|
|
|
Mark-to-market effects |
|
|
4.5 |
|
|
|
74.9 |
|
|
|
(35.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Divestitures gain, net |
|
|
|
|
|
|
(38.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from insurance settlement |
|
|
|
|
|
|
(26.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax item |
|
|
|
|
|
|
52.6 |
|
|
|
(30.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Tax charge heath care reform |
|
|
35.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, after-tax for
return on capital calculation |
|
$ |
1,831.1 |
|
|
$ |
1,607.8 |
|
|
$ |
1,491.9 |
|
|
$ |
1,386.8 |
|
|
$ |
1,316.8 |
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
107.3 |
|
|
$ |
508.5 |
|
|
$ |
442.0 |
|
|
$ |
1,734.0 |
|
|
$ |
2,131.5 |
|
|
$ |
1,638.7 |
|
Notes payable |
|
|
1,050.1 |
|
|
|
812.2 |
|
|
|
2,208.8 |
|
|
|
1,254.4 |
|
|
|
1,503.2 |
|
|
|
299.2 |
|
Long-term debt |
|
|
5,268.5 |
|
|
|
5,754.8 |
|
|
|
4,348.7 |
|
|
|
3,217.7 |
|
|
|
2,414.7 |
|
|
|
4,255.2 |
|
|
Total debt |
|
|
6,425.9 |
|
|
|
7,075.5 |
|
|
|
6,999.5 |
|
|
|
6,206.1 |
|
|
|
6,049.4 |
|
|
|
6,193.1 |
|
Noncontrolling interests (a) |
|
|
245.1 |
|
|
|
244.2 |
|
|
|
246.6 |
|
|
|
1,139.2 |
|
|
|
1,136.2 |
|
|
|
1,133.2 |
|
Stockholders equity (a) |
|
|
5,402.9 |
|
|
|
5,172.3 |
|
|
|
6,212.2 |
|
|
|
5,318.7 |
|
|
|
5,772.3 |
|
|
|
5,676.4 |
|
|
Total capital |
|
|
12,073.9 |
|
|
|
12,492.0 |
|
|
|
13,458.3 |
|
|
|
12,664.0 |
|
|
|
12,957.9 |
|
|
|
13,002.7 |
|
Accumulated other comprehensive
(income) loss (a) |
|
|
1,486.9 |
|
|
|
877.8 |
|
|
|
(173.1 |
) |
|
|
120.1 |
|
|
|
(125.4 |
) |
|
|
(8.1 |
) |
After-tax earnings adjustments (b) |
|
|
(161.6 |
) |
|
|
(201.1 |
) |
|
|
(263.7 |
) |
|
|
(197.1 |
) |
|
|
(197.1 |
) |
|
|
(197.1 |
) |
|
Adjusted total capital |
|
$ |
13,399.2 |
|
|
$ |
13,168.7 |
|
|
$ |
13,021.5 |
|
|
$ |
12,587.0 |
|
|
$ |
12,635.4 |
|
|
$ |
12,797.5 |
|
|
Adjusted average total capital |
|
$ |
13,283.9 |
|
|
$ |
13,095.1 |
|
|
$ |
12,804.3 |
|
|
$ |
12,611.2 |
|
|
$ |
12,716.5 |
|
|
|
|
|
|
|
|
|
|
Return on average total capital (a) |
|
|
13.8 |
% |
|
|
12.3 |
% |
|
|
11.7 |
% |
|
|
11.0 |
% |
|
|
10.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In fiscal 2010, we adopted new accounting guidance on non-controlling interests in
financial statements. Prior year figures in this line item have been adjusted to reflect
the current year presentation. The adjustment in fiscal 2005 reflects a divesture gain,
net of debt repurchase cost recorded that year. |
(b) |
|
Sum of current year and previous year after-tax adjustments. |
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and
assumptions. We also may make written or oral forward-looking statements, including statements
contained in our filings with the SEC 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.
47
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, we are identifying important factors that could affect our financial performance and could
cause our actual results in future periods to differ materially from any current opinions or
statements.
Our future results could be affected by a variety of factors, such as: competitive dynamics in the
consumer foods industry and the markets for our products, including new product introductions,
advertising activities, pricing actions, and promotional activities of our competitors; economic
conditions, including changes in inflation rates, interest rates, tax rates, or the availability of
capital; product development and innovation; consumer acceptance of new products and product
improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or
dispositions of businesses or assets; changes in capital structure; changes in laws and
regulations, including labeling and advertising regulations; impairments in the carrying value of
goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of
other intangible assets; changes in accounting standards and the impact of significant accounting
estimates; product quality and safety issues, including recalls and product liability; changes in
consumer demand for our products; effectiveness of advertising, marketing, and promotional
programs; changes in consumer behavior, trends, and preferences, including weight loss trends;
consumer perception of health-related issues, including obesity; consolidation in the retail
environment; changes in purchasing and inventory levels of significant customers; fluctuations in
the cost and availability of supply chain resources, including raw materials, packaging, and
energy; disruptions or inefficiencies in the supply chain; 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 of our
information technology systems; resolution of uncertain income tax matters; 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.
|
|
|
ITEM 7A |
|
Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to market risk stemming from changes in interest rates, foreign exchange rates,
commodity prices, and equity prices. Changes in these factors could cause fluctuations in our
earnings and cash flows. In the normal course of business, we actively manage our exposure to these
market risks by entering into various hedging transactions, authorized under established policies
that place clear controls on these activities. The counterparties in these transactions are
generally highly rated institutions. We establish credit limits for each counterparty. Our hedging
transactions include but are not limited to a variety of derivative financial instruments.
INTEREST RATE RISK
We are exposed to interest rate volatility with regard to future issuances of fixed-rate debt, and
existing and future issuances of floating-rate debt. Primary exposures include U.S. Treasury rates,
LIBOR, and commercial paper rates in the United States and Europe. We use interest rate swaps and
forward-starting interest rate swaps to hedge our exposure to interest rate changes, to reduce the
volatility of our financing costs, and to achieve a desired proportion of fixed-rate versus
floating-rate debt, based on current and projected market conditions. Generally under these swaps,
we agree with a counterparty to exchange the difference between fixed-rate and floating-rate
interest amounts based on an agreed upon notional principal amount.
As of May 30, 2010, we had $3.8 billion of aggregate notional principal amount outstanding, with a
net notional amount of $556 million that converts floating-rate notes to fixed rates. This includes
notional amounts of offsetting swaps that neutralize our exposure to interest rates on other
interest rate swaps.
48
FOREIGN EXCHANGE RISK
Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign
currency cash flows related to foreign-denominated commercial paper, third party purchases,
intercompany loans, and product shipments. We are also exposed to the translation of foreign
currency earnings to the U.S. dollar. Our principal exposures are to the Australian dollar, British
pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, and Mexican peso. We mainly
use foreign currency forward contracts to selectively hedge our foreign currency cash flow
exposures. We also generally swap our foreign-denominated commercial paper borrowings and
nonfunctional currency intercompany loans back to U.S. dollars or the functional currency; the
gains or losses on these derivatives offset the foreign currency revaluation gains or losses
recorded in earnings on the associated borrowings. We generally do not hedge more than 18 months
forward.
We also have many net investments in foreign subsidiaries that are denominated in euros. We
previously hedged a portion of these net investments by issuing euro-denominated commercial paper
and foreign exchange forward contracts. As of May 30, 2010, we had deferred net foreign currency
transaction losses of $96 million in AOCI associated with hedging activity.
COMMODITY PRICE RISK
Many commodities we use in the production and distribution of our products are exposed to market
price risks. We utilize derivatives to manage price risk for our principal ingredients and energy
costs, including grains (oats, wheat, and corn), oils (principally soybean), non-fat dry milk,
natural gas, and diesel fuel. Our primary objective when entering into these derivative contracts
is to achieve certainty with regard to the future price of commodities purchased for use in our
supply chain. We manage our exposures through a combination of purchase orders, long-term contracts
with suppliers, exchange-traded futures and options, and over-the-counter options and swaps. We
offset our exposures based on current and projected market conditions and generally seek to acquire
the inputs at as close to our planned cost as possible.
As of May 30, 2010, the net notional value of commodity derivatives was $464 million, of which $295
million related to agricultural inputs and $169 million related to energy inputs. These contracts
relate to inputs that generally will be utilized within the next 12 months.
EQUITY INSTRUMENTS
Equity price movements affect our compensation expense as certain investments made by our employees
in our deferred compensation plan are revalued. We use equity swaps to manage this market risk.
VALUE AT RISK
The estimates in the table below are intended to measure the maximum potential fair value we could
lose in one day from adverse changes in market interest rates, foreign exchange rates, commodity
prices, and equity prices under normal market conditions. A Monte Carlo value-at-risk (VAR)
methodology was used to quantify the market risk for our exposures. The models assumed normal
market conditions and used a 95 percent confidence level.
The VAR calculation used historical interest rates, foreign exchange rates, and commodity and
equity prices from the past year to estimate the potential volatility and correlation of these
rates in the future. The market data were drawn from the RiskMetrics data set. The
calculations are not intended to represent actual losses in fair value that we expect to incur.
Further, since the hedging instrument (the derivative) inversely correlates with the underlying
exposure, we would expect that any loss or gain in the fair value of our derivatives would be
generally offset by an increase or decrease in the fair value of the underlying exposure. The
positions included in the calculations were: debt; investments; interest rate swaps; foreign
exchange forwards; commodity swaps, futures and options; and equity instruments. The calculations
do not include the underlying foreign exchange and commodities-related positions that are offset by
these market-risk-sensitive instruments.
49
The table below presents the estimated maximum potential VAR arising from a one-day loss in fair
value for our interest rate, foreign currency, commodity, and equity market-risk-sensitive
instruments outstanding as of May 30, 2010, and May 31, 2009, and the average fair value impact
during the year ended May 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Impact |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
May 30, |
|
|
during |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
fiscal 2010 |
|
|
2009 |
|
|
Interest rate instruments |
|
$ |
27.7 |
|
|
$ |
35.9 |
|
|
$ |
44.4 |
|
Foreign currency instruments |
|
|
4.3 |
|
|
|
4.7 |
|
|
|
5.8 |
|
Commodity instruments |
|
|
4.8 |
|
|
|
7.8 |
|
|
|
10.4 |
|
Equity instruments |
|
|
|
|
|
|
0.9 |
|
|
|
1.8 |
|
|
50
|
|
|
ITEM 8 |
|
Financial Statements and Supplementary Data |
REPORT OF MANAGEMENT RESPONSIBILITIES
The management of General Mills, Inc. is responsible for the fairness and accuracy of the
consolidated financial statements. The statements have been prepared in accordance with accounting
principles that are generally accepted in the United States, using managements best estimates and
judgments where appropriate. The financial information throughout this Annual Report on Form 10-K
is consistent with our consolidated financial statements.
Management has established a system of internal controls that provides reasonable assurance that
assets are adequately safeguarded and transactions are recorded accurately in all material
respects, in accordance with managements authorization. We maintain a strong audit program that
independently evaluates the adequacy and effectiveness of internal controls. Our internal controls
provide for appropriate separation of duties and responsibilities, and there are documented
policies regarding use of our assets and proper financial reporting. These formally stated and
regularly communicated policies demand highly ethical conduct from all employees.
The Audit Committee of the Board of Directors meets regularly with management, internal auditors,
and our independent registered public accounting firm to review internal control, auditing, and
financial reporting matters. The independent registered public accounting firm, internal auditors,
and employees have full and free access to the Audit Committee at any time.
The Audit Committee reviewed and approved the Companys annual financial statements. The Audit
Committee recommended, and the Board of Directors approved, that the consolidated financial
statements be included in the Annual Report. The Audit Committee also appointed KPMG LLP to serve
as the Companys independent registered public accounting firm for fiscal 2011, subject to
ratification by the stockholders at the annual meeting.
|
|
|
/s/ K. J. Powell
|
|
/s/ D. L. Mulligan |
|
|
|
K. J. Powell |
|
D. L. Mulligan |
Chairman of the Board
|
|
Executive Vice President |
and Chief Executive Officer
|
|
and Chief Financial Officer |
|
|
|
July 9, 2010 |
|
|
51
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
General Mills, Inc.:
We have audited the accompanying consolidated balance sheets of General Mills, Inc. and
subsidiaries as of May 30, 2010, and May 31, 2009, and the related consolidated statements of
earnings, total equity and comprehensive income, and cash flows for each of the fiscal years in the
three-year period ended May 30, 2010. In connection with our audits of the consolidated financial
statements, we have audited the accompanying financial statement schedule. We also have audited
General Mills Inc.s internal control over financial reporting as of May 30, 2010, based on
criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). General Mills, Inc.s management is
responsible for these consolidated financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in Managements Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule and an opinion on the Companys
internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of General Mills, Inc. and subsidiaries as of May 30,
2010, and May 31, 2009, and the results of their operations and their cash flows for each of the
fiscal years in the three-year period ended May 30, 2010, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the accompanying financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein. Also in our opinion,
General Mills, Inc. maintained, in all material respects, effective internal control over financial
reporting as of May 30, 2010, based on criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
52
As disclosed in Note 1 to the Consolidated Financial Statements, the Company changed its method of
accounting for noncontrolling interests in fiscal year 2010.
/s/ KPMG LLP
Minneapolis, Minnesota
July 9, 2010
53
Consolidated Statements of Earnings
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
14,796.5 |
|
|
$ |
14,691.3 |
|
|
$ |
13,652.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
8,922.9 |
|
|
|
9,457.8 |
|
|
|
8,778.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
|
3,236.1 |
|
|
|
2,951.8 |
|
|
|
2,623.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestitures (gain), net |
|
|
|
|
|
|
(84.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring, impairment, and other exit costs |
|
|
31.4 |
|
|
|
41.6 |
|
|
|
21.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
2,606.1 |
|
|
|
2,325.0 |
|
|
|
2,229.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net |
|
|
401.6 |
|
|
|
382.8 |
|
|
|
399.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and after-tax earnings
from joint ventures |
|
|
2,204.5 |
|
|
|
1,942.2 |
|
|
|
1,829.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
771.2 |
|
|
|
720.4 |
|
|
|
622.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax earnings from joint ventures |
|
|
101.7 |
|
|
|
91.9 |
|
|
|
110.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to
noncontrolling interests |
|
|
1,535.0 |
|
|
|
1,313.7 |
|
|
|
1,318.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to noncontrolling interests |
|
|
4.5 |
|
|
|
9.3 |
|
|
|
23.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to General Mills |
|
$ |
1,530.5 |
|
|
$ |
1,304.4 |
|
|
$ |
1,294.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic |
|
$ |
2.32 |
|
|
$ |
1.96 |
|
|
$ |
1.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - diluted |
|
$ |
2.24 |
|
|
$ |
1.90 |
|
|
$ |
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
0.96 |
|
|
$ |
0.86 |
|
|
$ |
0.78 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
54
Consolidated Balance Sheets
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except Par Value)
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
|
|
2010 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
673.2 |
|
|
$ |
749.8 |
|
Receivables |
|
|
1,041.6 |
|
|
|
953.4 |
|
Inventories |
|
|
1,344.0 |
|
|
|
1,346.8 |
|
Deferred income taxes |
|
|
42.7 |
|
|
|
15.6 |
|
Prepaid expenses and other current assets |
|
|
378.5 |
|
|
|
469.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,480.0 |
|
|
|
3,534.9 |
|
|
|
|
|
|
|
|
|
|
Land, buildings, and equipment |
|
|
3,127.7 |
|
|
|
3,034.9 |
|
Goodwill |
|
|
6,592.8 |
|
|
|
6,663.0 |
|
Other intangible assets |
|
|
3,715.0 |
|
|
|
3,747.0 |
|
Other assets |
|
|
763.4 |
|
|
|
895.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
17,678.9 |
|
|
$ |
17,874.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
849.5 |
|
|
$ |
803.4 |
|
Current portion of long-term debt |
|
|
107.3 |
|
|
|
508.5 |
|
Notes payable |
|
|
1,050.1 |
|
|
|
812.2 |
|
Other current liabilities |
|
|
1,762.2 |
|
|
|
1,481.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,769.1 |
|
|
|
3,606.0 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
5,268.5 |
|
|
|
5,754.8 |
|
Deferred income taxes |
|
|
874.6 |
|
|
|
1,165.3 |
|
Other liabilities |
|
|
2,118.7 |
|
|
|
1,932.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
12,030.9 |
|
|
|
12,458.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, 754.6 shares issued, $0.10 par value |
|
|
75.5 |
|
|
|
75.5 |
|
Additional paid-in capital |
|
|
1,307.1 |
|
|
|
1,212.1 |
|
Retained earnings |
|
|
8,122.4 |
|
|
|
7,235.6 |
|
Common stock in treasury, at cost, shares of 98.1
and 98.6 |
|
|
(2,615.2 |
) |
|
|
(2,473.1 |
) |
Accumulated other comprehensive loss |
|
|
(1,486.9 |
) |
|
|
(877.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
5,402.9 |
|
|
|
5,172.3 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
|
|
245.1 |
|
|
|
244.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
5,648.0 |
|
|
|
5,416.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
17,678.9 |
|
|
$ |
17,874.8 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
55
Consolidated Statements of Total Equity and Comprehensive Income
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$.10 Par Value Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(One Billion Shares Authorized) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued |
|
|
Treasury |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Paid-In |
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Interests |
|
|
Total |
|
|
Balance as of May 27, 2007 |
|
|
1,004.6 |
|
|
$ |
100.5 |
|
|
$ |
5,791.0 |
|
|
|
(323.4 |
) |
|
$ |
(6,198.0 |
) |
|
$ |
5,745.3 |
|
|
$ |
(120.1 |
) |
|
$ |
1,139.2 |
|
|
$ |
6,457.9 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings
attributable to noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,294.7 |
|
|
|
|
|
|
|
23.4 |
|
|
|
1,318.1 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293.2 |
|
|
|
3.2 |
|
|
|
296.4 |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,614.5 |
|
Cash dividends declared
($0.78 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(529.7 |
) |
|
|
|
|
|
|
|
|
|
|
(529.7 |
) |
Stock compensation plans (includes
income tax benefits of $55.7) |
|
|
|
|
|
|
|
|
|
|
121.0 |
|
|
|
13.0 |
|
|
|
261.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382.6 |
|
Shares purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47.8 |
) |
|
|
(1,384.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,384.6 |
) |
Retirement of treasury shares |
|
|
(250.0 |
) |
|
|
(25.0 |
) |
|
|
(5,055.8 |
) |
|
|
250.0 |
|
|
|
5,080.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under forward
purchase contract |
|
|
|
|
|
|
|
|
|
|
168.2 |
|
|
|
28.6 |
|
|
|
581.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750.0 |
|
Unearned compensation related to
restricted stock unit awards |
|
|
|
|
|
|
|
|
|
|
(104.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(104.1 |
) |
Adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
57.8 |
|
|
|
|
|
|
|
|
|
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
66.2 |
|
Repurchase of Series B-1 limited
membership interests in General
Mills Cereals, LLC (GMC) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.0 |
) |
|
|
|
|
|
|
(835.0 |
) |
|
|
(843.0 |
) |
Repurchase of GM Capital Inc.
Series A preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150.0 |
) |
|
|
(150.0 |
) |
Sale of GMC Class A limited
membership interests in GMC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92.3 |
|
|
|
92.3 |
|
Distributions to
noncontrolling interest
holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26.5 |
) |
|
|
(26.5 |
) |
Earned compensation |
|
|
|
|
|
|
|
|
|
|
133.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133.2 |
|
|
Balance as of May 25, 2008 |
|
|
754.6 |
|
|
|
75.5 |
|
|
|
1,111.3 |
|
|
|
(79.6 |
) |
|
|
(1,658.4 |
) |
|
$ |
6,510.7 |
|
|
|
173.1 |
|
|
|
246.6 |
|
|
|
6,458.8 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings
attributable to noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,304.4 |
|
|
|
|
|
|
|
9.3 |
|
|
|
1,313.7 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,050.9 |
) |
|
|
(1.2 |
) |
|
|
(1,052.1 |
) |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261.6 |
|
Cash dividends declared
($0.86 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(579.5 |
) |
|
|
|
|
|
|
|
|
|
|
(579.5 |
) |
Stock compensation plans (includes
income tax benefits of $94.0) |
|
|
|
|
|
|
|
|
|
|
23.0 |
|
|
|
19.6 |
|
|
|
443.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
466.1 |
|
Shares purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40.4 |
) |
|
|
(1,296.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,296.4 |
) |
Shares issued for acquisition |
|
|
|
|
|
|
|
|
|
|
16.4 |
|
|
|
1.8 |
|
|
|
38.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55.0 |
|
Unearned compensation related to
restricted stock unit awards |
|
|
|
|
|
|
|
|
|
|
(56.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56.2 |
) |
Distributions to noncontrolling
interest holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.5 |
) |
|
|
(10.5 |
) |
Earned compensation |
|
|
|
|
|
|
|
|
|
|
117.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117.6 |
|
|
Balance as of May 31, 2009 |
|
|
754.6 |
|
|
|
75.5 |
|
|
|
1,212.1 |
|
|
|
(98.6 |
) |
|
|
(2,473.1 |
) |
|
|
7,235.6 |
|
|
|
(877.8 |
) |
|
|
244.2 |
|
|
|
5,416.5 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings
attributable to noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,530.5 |
|
|
|
|
|
|
|
4.5 |
|
|
|
1,535.0 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(609.1 |
) |
|
|
0.2 |
|
|
|
(608.9 |
) |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
926.1 |
|
Cash dividends declared
($0.96 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(643.7 |
) |
|
|
|
|
|
|
|
|
|
|
(643.7 |
) |
Stock compensation plans (includes
income tax benefits of $114.0) |
|
|
|
|
|
|
|
|
|
|
53.3 |
|
|
|
21.8 |
|
|
|
549.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
603.0 |
|
Shares purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.3 |
) |
|
|
(691.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(691.8 |
) |
Unearned compensation related to
restricted stock unit awards |
|
|
|
|
|
|
|
|
|
|
(65.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65.6 |
) |
Distributions to noncontrolling
interest holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.8 |
) |
|
|
(3.8 |
) |
Earned compensation |
|
|
|
|
|
|
|
|
|
|
107.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107.3 |
|
|
Balance as of May 30, 2010 |
|
|
754.6 |
|
|
$ |
75.5 |
|
|
$ |
1,307.1 |
|
|
|
(98.1 |
) |
|
$ |
(2,615.2 |
) |
|
$ |
8,122.4 |
|
|
$ |
(1,486.9 |
) |
|
$ |
245.1 |
|
|
$ |
5,648.0 |
|
|
See accompanying notes to consolidated financial statements.
56
Consolidated Statements of Cash Flows
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash Flows - Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to noncontrolling interests |
|
$ |
1,535.0 |
|
|
$ |
1,313.7 |
|
|
$ |
1,318.1 |
|
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
457.1 |
|
|
|
453.6 |
|
|
|
459.2 |
|
After-tax earnings from joint ventures |
|
|
(101.7 |
) |
|
|
(91.9 |
) |
|
|
(110.8 |
) |
Stock-based compensation |
|
|
107.3 |
|
|
|
117.7 |
|
|
|
133.2 |
|
Deferred income taxes |
|
|
22.3 |
|
|
|
215.8 |
|
|
|
98.1 |
|
Tax benefit on exercised options |
|
|
(114.0 |
) |
|
|
(89.1 |
) |
|
|
(55.7 |
) |
Distributions of earnings from joint ventures |
|
|
88.0 |
|
|
|
68.5 |
|
|
|
108.7 |
|
Pension and other postretirement benefit plan contributions |
|
|
(17.2 |
) |
|
|
(220.3 |
) |
|
|
(14.2 |
) |
Pension and other postretirement benefit plan (income) expense |
|
|
(37.9 |
) |
|
|
(27.5 |
) |
|
|
5.5 |
|
Divestitures (gain), net |
|
|
|
|
|
|
(84.9 |
) |
|
|
|
|
Gain on insurance settlement |
|
|
|
|
|
|
(41.3 |
) |
|
|
|
|
Restructuring, impairment, and other exit costs (income) |
|
|
23.4 |
|
|
|
31.3 |
|
|
|
(1.7 |
) |
Changes in current assets and liabilities |
|
|
143.4 |
|
|
|
176.9 |
|
|
|
(126.7 |
) |
Other, net |
|
|
75.5 |
|
|
|
5.7 |
|
|
|
(83.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
2,181.2 |
|
|
|
1,828.2 |
|
|
|
1,729.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows - Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of land, buildings, and equipment |
|
|
(649.9 |
) |
|
|
(562.6 |
) |
|
|
(522.0 |
) |
Acquisitions |
|
|
|
|
|
|
|
|
|
|
0.6 |
|
Investments in affiliates, net |
|
|
(130.7 |
) |
|
|
5.9 |
|
|
|
64.6 |
|
Proceeds from disposal of land, buildings, and equipment |
|
|
7.4 |
|
|
|
4.1 |
|
|
|
25.9 |
|
Proceeds from divestiture of product lines |
|
|
|
|
|
|
244.7 |
|
|
|
|
|
Proceeds from insurance settlement |
|
|
|
|
|
|
41.3 |
|
|
|
|
|
Other, net |
|
|
52.0 |
|
|
|
(22.3 |
) |
|
|
(11.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(721.2 |
) |
|
|
(288.9 |
) |
|
|
(442.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows - Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Change in notes payable |
|
|
235.8 |
|
|
|
(1,390.5 |
) |
|
|
946.6 |
|
Issuance of long-term debt |
|
|
|
|
|
|
1,850.0 |
|
|
|
1,450.0 |
|
Payment of long-term debt |
|
|
(906.9 |
) |
|
|
(370.3 |
) |
|
|
(1,623.4 |
) |
Settlement of Lehman Brothers forward purchase contract |
|
|
|
|
|
|
|
|
|
|
750.0 |
|
Repurchase of Series B-1 limited membership interests in GMC |
|
|
|
|
|
|
|
|
|
|
(843.0 |
) |
Repurchase of General Mills Capital, Inc. preferred stock |
|
|
|
|
|
|
|
|
|
|
(150.0 |
) |
Proceeds from sale of Class A limited membership interests in GMC |
|
|
|
|
|
|
|
|
|
|
92.3 |
|
Proceeds from common stock issued on exercised options |
|
|
388.8 |
|
|
|
305.2 |
|
|
|
191.4 |
|
Tax benefit on exercised options |
|
|
114.0 |
|
|
|
89.1 |
|
|
|
55.7 |
|
Purchases of common stock for treasury |
|
|
(691.8 |
) |
|
|
(1,296.4 |
) |
|
|
(1,432.4 |
) |
Dividends paid |
|
|
(643.7 |
) |
|
|
(579.5 |
) |
|
|
(529.7 |
) |
Other, net |
|
|
|
|
|
|
(12.1 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(1,503.8 |
) |
|
|
(1,404.5 |
) |
|
|
(1,093.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(32.8 |
) |
|
|
(46.0 |
) |
|
|
49.4 |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(76.6 |
) |
|
|
88.8 |
|
|
|
243.9 |
|
Cash and cash equivalents - beginning of year |
|
|
749.8 |
|
|
|
661.0 |
|
|
|
417.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of year |
|
$ |
673.2 |
|
|
$ |
749.8 |
|
|
$ |
661.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Changes in Current Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
$ |
(121.1 |
) |
|
$ |
81.8 |
|
|
$ |
(94.1 |
) |
Inventories |
|
|
(16.7 |
) |
|
|
(28.1 |
) |
|
|
(165.1 |
) |
Prepaid expenses and other current assets |
|
|
53.5 |
|
|
|
30.2 |
|
|
|
(65.9 |
) |
Accounts payable |
|
|
69.6 |
|
|
|
(116.4 |
) |
|
|
125.1 |
|
Other current liabilities |
|
|
158.1 |
|
|
|
209.4 |
|
|
|
73.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in current assets and liabilities |
|
$ |
143.4 |
|
|
$ |
176.9 |
|
|
$ |
(126.7 |
) |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
57
Notes to Consolidated Financial Statements
GENERAL MILLS, INC. AND SUBSIDIARIES
NOTE 1. BASIS OF PRESENTATION AND RECLASSIFICATIONS
Basis of Presentation
Our Consolidated Financial Statements include the accounts of General Mills, Inc. and all
subsidiaries in which we have a controlling financial interest. Intercompany transactions and
accounts are eliminated in consolidation.
Our fiscal year ends on the last Sunday in May. Fiscal 2010 and 2008 each consisted of 52 weeks,
and fiscal 2009 consisted of 53 weeks.
In December 2007, the Financial Accounting Standards Board (FASB) issued new guidance on
noncontrolling interests in financial statements. The guidance establishes accounting and reporting
standards that require: the ownership interest in subsidiaries held by parties other than the
parent to be clearly identified and presented in the Consolidated Balance Sheets within equity, but
separate from the parents equity; the amount of consolidated net earnings attributable to the
parent and the noncontrolling interest to be clearly identified and presented on the face of the
Consolidated Statements of Earnings; and changes in a parents ownership interest while the parent
retains its controlling financial interest in its subsidiary to be accounted for consistently.
We adopted the guidance at the beginning of fiscal 2010. To conform to the current period
presentation, we made the following reclassifications to net earnings attributable to
noncontrolling interests in our Consolidated Statements of Earnings:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2009 |
|
|
2008 |
|
|
From interest, net |
|
$ |
7.2 |
|
|
$ |
22.0 |
|
From selling, general, and administrative (SG&A) expenses |
|
|
2.1 |
|
|
|
1.4 |
|
|
Total net earnings attributable to noncontrolling interests |
|
$ |
9.3 |
|
|
$ |
23.4 |
|
|
Also, noncontrolling interests previously reported as minority interests have been reclassified to
a separate section in equity on the Consolidated Balance Sheets as a result of the adoption. In
addition, certain other reclassifications to our previously reported financial information have
been made to conform to the current period presentation.
In May 2010, our Board of Directors approved a two-for-one stock split to be effected in the form
of a 100 percent stock dividend to stockholders of record on May 28, 2010. The Companys
stockholders received one additional share of common stock for each share of common stock in their
possession on that date. The additional shares were distributed on June 8, 2010. This did not
change the proportionate interest that a stockholder maintained in the Company. All shares and per
share amounts have been adjusted for the two-for-one stock split throughout this report.
Change in Reporting Period
As part of a long-term plan to conform the fiscal year ends of all our operations, we have changed
the reporting period of certain countries within our International segment from an April fiscal
year end to a May fiscal year end to match our fiscal calendar. Accordingly, in the year of change,
our results include 13 months of results from the affected operations compared to 12 months in
previous fiscal years. In fiscal 2010, we changed many of the countries in our Asia/Pacific region,
and in fiscal 2009 we changed most countries in our Latin America region. The impact of these
changes was not material to our results of operations and, therefore, we did not restate prior
period financial statements for comparability. Countries within the International segment that
remain on an April fiscal year end include our European operations and China.
58
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
We consider all investments purchased with an original maturity of three months or less to be cash
equivalents.
Inventories
All inventories in the United States other than grain and certain organic products are valued at
the lower of cost, using the last-in, first-out (LIFO) method, or market. Grain inventories and all
related cash contracts and derivatives are valued at market with all net changes in value recorded
in earnings currently.
Inventories outside of the United States are valued at the lower of cost, using the first-in,
first-out (FIFO) method, or market.
Shipping costs associated with the distribution of finished product to our customers are recorded
as cost of sales, and are recognized when the related finished product is shipped to and accepted
by the customer.
Land, Buildings, Equipment, and Depreciation
Land is recorded at historical cost. Buildings and equipment, including capitalized interest and
internal engineering costs, are recorded at cost and depreciated over estimated useful lives,
primarily using the straight-line method. Ordinary maintenance and repairs are charged to cost of
sales. Buildings are usually depreciated over 40 to 50 years, and equipment, furniture, and
software are usually depreciated over 3 to 10 years. Fully depreciated assets are retained in
buildings and equipment until disposal. When an item is sold or retired, the accounts are relieved
of its cost and related accumulated depreciation; the resulting gains and losses, if any, are
recognized in earnings. As of May 30, 2010, assets held for sale were insignificant.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss
would be recognized when estimated undiscounted future cash flows from the operation and
disposition of the asset group are less than the carrying amount of the asset group. Asset groups
have identifiable cash flows and are largely independent of other asset groups. Measurement of an
impairment loss would be based on the excess of the carrying amount of the asset group over its
fair value. Fair value is measured using a discounted cash flow model or independent appraisals, as
appropriate.
Goodwill and Other Intangible Assets
Goodwill is not subject to amortization and is tested for impairment annually and whenever events
or changes in circumstances indicate that impairment may have occurred. Impairment testing is
performed for each of our reporting units. We compare the carrying value of a reporting unit,
including goodwill, to the fair value of the unit. Carrying value is based on the assets and
liabilities associated with the operations of that reporting unit, which often requires allocation
of shared or corporate items among reporting units. If the carrying amount of a reporting unit
exceeds its fair value, we revalue all assets and liabilities of the reporting unit, excluding
goodwill, to determine if the fair value of the net assets is greater than the net assets including
goodwill. If the fair value of the net assets is less than the net assets including goodwill,
impairment has occurred. Our estimates of fair value are determined based on a discounted cash flow
model. Growth rates for sales and profits are determined using inputs from our annual long-range
planning process. 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.
Our indefinite-lived intangible assets, mainly intangible assets primarily associated with the
Pillsbury, Totinos, Progresso, Green Giant, Old El Paso, and Häagen-Dazs brands, are also tested
for impairment annually and whenever events or changes in circumstances indicate that their
carrying value may not be recoverable. We
59
performed our fiscal 2010 assessment of our brand intangibles as of December 1, 2009. Our estimate
of the fair value of the brands was based on a discounted cash flow model using inputs which
included: projected revenues from our annual long-range plan; assumed royalty rates that could be
payable if we did not own the brands; and a discount rate. As of our assessment date, there was no
impairment of any of our intangibles as their related fair values were substantially in excess of
the carrying values.
Investments in Joint Ventures
Our investments in companies over which we have the ability to exercise significant influence are
stated at cost plus our share of undistributed earnings or losses. We receive royalty income from
certain joint ventures, incur various expenses (primarily research and development), and record the
tax impact of certain joint venture operations that are structured as partnerships. In addition, we
make advances to our joint ventures in the form of loans or capital investments. We also sell
certain raw materials, semi-finished goods, and finished goods to the joint ventures, generally at
market prices.
Variable Interest Entities
As of May 30, 2010, we had invested in three variable interest entities (VIEs). We have an interest
in a contract manufacturer at our former facility in Geneva, Illinois. We are the primary
beneficiary (PB) and have consolidated this entity. This entity had property and equipment with a
carrying value of $19.4 million and long-term debt of $20.9 million as of May 30, 2010. The
liabilities recognized as a result of consolidating this entity do not represent additional claims
on our general assets. We also have an interest in a contract manufacturer in Greece that is a VIE.
Although we are the PB, we have not consolidated this entity because it is not practical to do so
and it is not material to our results of operations, financial condition, or liquidity as of and
for the year ended May 30, 2010. This entity had assets of $6.7 million and liabilities of $1.4
million as of May 30, 2010. We are not the PB of the remaining VIE. Our maximum exposure to loss
from the three VIEs is limited to the $20.9 million of long-term debt of the contract manufacturer
in Geneva, Illinois and our $2.2 million equity investment in the VIE of which we are not the PB.
We have not provided financial or other support to these VIEs during the current period nor are
there arrangements related to these VIEs that could require us to provide financial support in the
future.
Revenue Recognition
We recognize sales revenue when the shipment is accepted by our customer. Sales include shipping
and handling charges billed to the customer and are reported net of consumer coupon redemption,
trade promotion and other costs, including estimated allowances for returns, unsalable product, and
prompt pay discounts. Sales, use, value-added, and other excise taxes are not recognized in
revenue. Coupons are recorded when distributed, based on estimated redemption rates. Trade
promotions are recorded based on estimated participation and performance levels for offered
programs at the time of sale. We generally do not allow a right of return. However, on a limited
case-by-case basis with prior approval, we may allow customers to return product. In limited
circumstances, product returned in saleable condition is resold to other customers or outlets.
Receivables from customers generally do not bear interest. Terms and collection patterns vary
around the world and by channel. The allowance for doubtful accounts represents our estimate of
probable non-payments and credit losses in our existing receivables, as determined based on a
review of past due balances and other specific account data. Account balances are written off
against the allowance when we deem the amount is uncollectible.
Environmental
Environmental costs relating to existing conditions caused by past operations that do not
contribute to current or future revenues are expensed. Liabilities for anticipated remediation
costs are recorded on an undiscounted basis when they are probable and reasonably estimable,
generally no later than the completion of feasibility studies or our commitment to a plan of
action.
Advertising Production Costs
We expense the production costs of advertising the first time that the advertising takes place.
Research and Development
All expenditures for research and development (R&D) are charged against earnings in the year
incurred. R&D includes expenditures for new product and manufacturing process innovation, and the
annual expenditures are comprised primarily of internal salaries, wages, consulting, and other
supplies attributable to time spent on R&D
60
activities. Other costs include depreciation and maintenance of research facilities, including
assets at facilities that are engaged in pilot plant activities.
Foreign Currency Translation
For all significant foreign operations, the functional currency is the local currency. Assets and
liabilities of these operations are translated at the period-end exchange rates. Income statement
accounts are translated using the average exchange rates prevailing during the year. Translation
adjustments are reflected within accumulated other comprehensive loss in stockholders equity.
Gains and losses from foreign currency transactions are included in net earnings for the period
except for gains and losses on investments in subsidiaries for which settlement is not planned for
the foreseeable future and foreign exchange gains and losses on instruments designated as net
investment hedges. These gains and losses are recorded in accumulated other comprehensive loss.
Derivative Instruments
All derivatives are recognized on the Consolidated Balance Sheets at fair value based on quoted
market prices or our estimate of their fair value, and are recorded in either current or noncurrent
assets or liabilities based on their maturity. Changes in the fair values of derivatives are
recorded in net earnings or other comprehensive income, based on whether the instrument is
designated and effective as a hedge transaction and, if so, the type of hedge transaction. Gains or
losses on derivative instruments reported in accumulated other comprehensive loss are reclassified
to earnings in the period the hedged item affects earnings. If the underlying hedged transaction
ceases to exist, any associated amounts reported in accumulated other comprehensive loss are
reclassified to earnings at that time. Any ineffectiveness is recognized in earnings in the current
period.
We use derivatives to manage our exposure to changes in commodity prices. We do not perform the
assessments required to achieve hedge accounting for commodity derivative positions. Accordingly,
the changes in the values of these derivatives are recorded currently in cost of sales in our
Consolidated Statements of Earnings.
Although we do not meet the criteria for cash flow hedge accounting, we nonetheless believe that
these instruments are effective in achieving our objective of providing certainty in the future
price of commodities purchased for use in our supply chain. Accordingly, for purposes of measuring
segment operating performance these gains and losses are reported in unallocated corporate items
outside of segment operating results until such time that the exposure we are managing affects
earnings. At that time we reclassify the gain or loss from unallocated corporate items to segment
operating profit, allowing our operating segments to realize the economic effects of the derivative
without experiencing any resulting mark-to-market volatility, which remains in unallocated
corporate items.
Stock-based Compensation
We generally recognize compensation expense for grants of restricted stock units using the value of
a share of our stock on the date of grant. We estimate the value of stock option grants using the
Black-Scholes valuation model. Stock compensation is recognized straight line over the vesting
period. All of our stock compensation expense is recorded in SG&A in the Consolidated Statement of
Earnings and in unallocated corporate items in our segment results.
Certain equity-based compensation plans contain provisions that accelerate vesting of awards upon
retirement, disability, or death of eligible employees and directors. We consider a stock-based
award to be vested when the employees retention of the award is no longer contingent on providing
subsequent service. Accordingly, the related compensation cost is recognized immediately for awards
granted to retirement-eligible individuals or over the period from the grant date to the date
retirement eligibility is achieved, if less than the stated vesting period.
We report the benefits of tax deductions in excess of recognized compensation cost as a financing
cash flow, thereby reducing net operating cash flows and increasing net financing cash flows.
Defined Benefit Pension, Other Postretirement, and Postemployment Benefit Plans
We sponsor several domestic and foreign defined benefit plans to provide pension, health care, and
other welfare benefits to retired employees. Under certain circumstances, we also provide accruable
benefits to former or inactive employees in the United States and Canada and members of our Board
of Directors, including severance and certain other benefits payable upon death. We recognize an
obligation for any of these benefits that vest or accumulate with service. Postemployment benefits
that do not vest or accumulate with service (such as severance based solely on
61
annual pay rather than years of service) are charged to expense when incurred. Our postemployment
benefit plans are unfunded.
We recognize the underfunded or overfunded status of a defined benefit postretirement plan as an
asset or liability and recognize changes in the funded status in the year in which the changes
occur through accumulated other comprehensive loss.
Use of Estimates
Preparing our Consolidated Financial Statements in conformity with accounting principles generally
accepted in the United States requires us to make estimates and assumptions that affect reported
amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses during the reporting
period. These estimates include our accounting for promotional expenditures, valuation of
long-lived assets, intangible assets, stock-based compensation, income taxes, and defined benefit
pension, post-retirement and post-employment benefits. Actual results could differ from our
estimates.
Other New Accounting Standards
In fiscal 2010, we adopted new accounting guidance on employers disclosures for post-retirement
benefit plan assets. The guidance requires an employer to disclose information on the investment
policies and strategies and the significant concentrations of risk in plan assets. An employer must
also disclose the fair value of each major category of plan assets as of each annual reporting date
together with the information on the inputs and valuation techniques used to develop such fair
value measurements. The adoption of the guidance did not have an impact on our results of
operations or financial condition. See Note 13.
In fiscal 2010, we adopted new accounting guidance on accounting for equity method investments. The
guidance addresses the impact of the issuance of the noncontrolling interests and business
combination guidance on accounting for equity method investments. The adoption of the guidance did
not have a material impact on our results of operations or financial condition.
In fiscal 2010, we adopted new accounting guidance issued to assist in determining whether
instruments granted in share-based payment transactions are participating securities. The guidance
provides that unvested share-based payment awards that contain non-forfeitable rights to dividends
or dividend equivalents (whether paid or unpaid) are participating securities and shall be included
in the computation of EPS pursuant to the two-class method. The adoption of the guidance did not
have a material impact on our basic or diluted EPS.
In fiscal 2010, we adopted new accounting guidance on convertible debt instruments. The guidance
requires issuers to account separately for the liability and equity components of convertible debt
instruments that may be settled in cash or other assets. The adoption of the guidance did not have
a material impact on our results of operations or financial condition.
In fiscal 2009, we adopted the measurement date provisions of new accounting guidance related to
defined benefit pension and other postretirement plans. The guidance requires the funded status of
a plan to be measured as of the date of the year-end statement of financial position and requires
additional disclosures in the notes to consolidated financial statements. The guidance also
requires that employers recognize on a prospective basis the funded status of their defined benefit
pension and other postretirement plans in their consolidated balance sheets and recognize as a
component of other comprehensive income, net of income tax, the gains or losses and prior service
costs or credits that arise during the period but are not recognized as components of net periodic
benefit cost. The adoption of the measurement date provisions did not have a material impact on our
results of operations or financial condition.
In fiscal 2009, we adopted new accounting guidance on fair value measurements. The guidance
provides a single definition of fair value, a framework for measuring fair value, and expanded
disclosures about fair value measurements. The guidance applies to instruments accounted for under
previously issued pronouncements that prescribe fair value as the relevant measure of value. We
adopted the guidance at the beginning of fiscal 2009 for all instruments valued on a recurring
basis, and the adoption did not have a material impact on our financial statements. The FASB
deferred the effective date of the guidance until the beginning of fiscal 2010 as it relates to
fair value measurement requirements for nonfinancial assets and liabilities that are not remeasured
at fair value on a recurring basis. This includes fair value calculated in impairment assessments
of goodwill, indefinite-lived intangible assets,
62
and other long-lived assets. We adopted the guidance at the beginning of fiscal 2010 for all fair
value measurements of nonfinancial assets and liabilities that are not remeasured at fair value on
a recurring basis, and the adoption did not have a material impact on our financial statements.
In fiscal 2009, we adopted new accounting guidance on share-based payment awards. The guidance
requires that tax benefits from dividends paid on unvested restricted shares be charged directly to
stockholders equity instead of benefiting income tax expense. The adoption of the guidance did not
have a material impact on our results of operations or financial condition.
NOTE 3. ACQUISITIONS AND DIVESTITURES
There were no acquisitions or divestitures in fiscal 2010.
In fiscal 2009, we sold our bread concentrates product line within our Bakeries and Foodservice
segment, including a plant in Cedar Rapids, Iowa, for $8.3 million in cash. We recorded a pre-tax
loss of $5.6 million on the transaction. We also sold a portion of the assets of the frozen unbaked
bread dough product line within our Bakeries and Foodservice segment, including plants in
Bakersfield, California; Hazleton, Pennsylvania; Montreal, Canada; and Vinita, Oklahoma, for $43.9
million in cash, an $11.9 million note receivable, and contingent future payments based on the
post-sale performance of the product line. Certain assets sold were shared with a frozen dinner
roll product line within our U.S. Retail segment, and we exited this product line as a result of
the asset sale. We recorded a pre-tax loss of $38.3 million. In fiscal 2010, we recorded cash
proceeds of $3.2 million related to the repayment of the note. Additional cash proceeds will be
recognized in the future as the note is repaid and if the buyer is required to make any
performance-based contingent payments. In fiscal 2009, we sold our PopSecret microwave popcorn
product line from our U.S. Retail segment for $192.5 million in cash, and we recorded a pre-tax
gain of $128.8 million. We received cash proceeds of $158.9 million after repayment of a lease
obligation and transaction costs. In fiscal 2009, we also acquired Humm Foods, Inc. (Humm Foods),
the maker of Lärabar fruit and nut energy bars. We issued 1.8 million shares of our common stock
with a value of $55.0 million to the shareholders of Humm Foods as consideration for the
acquisition. We recorded the purchase price less tangible and intangible net assets acquired as
goodwill of $41.6 million. The pro forma effect of this acquisition was not material.
During fiscal 2008, the 8th Continent soymilk business was sold. Our 50 percent share of the
after-tax gain on the sale was $2.2 million, of which we recognized $1.7 million in after-tax
earnings from joint ventures in fiscal 2008. In fiscal 2010, we recorded an additional gain of $0.6
million when certain conditions related to the sale were satisfied. Also during fiscal 2008, we
acquired a controlling interest in HD Distributors (Thailand) Company Limited. Prior to acquiring
the controlling interest, we accounted for our investment as a joint venture. The purchase price,
net of cash acquired, resulted in a $1.3 million cash inflow classified in acquisitions on the
Consolidated Statements of Cash Flows.
NOTE 4. RESTRUCTURING, IMPAIRMENT, AND OTHER EXIT COSTS
We view our restructuring activities as a way to meet our long-term growth targets. Activities we
undertake must meet internal rate of return and net present value targets. Each restructuring
action normally takes one to two years to complete. At completion (or as each major stage is
completed in the case of multi-year programs), the project begins to deliver cash savings and/or
reduced depreciation. These activities result in various restructuring costs, including asset
write-offs, exit charges including severance, contract termination fees, and decommissioning and
other costs. Depreciation associated with restructured assets as used in the context of our
disclosures regarding restructuring activity refers to the increase in depreciation expense caused
by shortening the useful life or updating the salvage value of depreciable fixed assets to coincide
with the end of production under an approved restructuring plan. Any impairment of the asset is
recognized immediately in the period the plan is approved.
63
In fiscal 2010, we recorded restructuring, impairment, and other exit costs pursuant to approved
plans as follows:
|
|
|
|
|
Expense (Income), in Millions |
|
|
|
|
|
Discontinuation of kids refrigerated yogurt beverage and
microwave soup product lines |
|
$ |
24.1 |
|
Discontinuation of the breadcrumbs product line at Federalsburg,
Maryland plant |
|
|
6.2 |
|
Sale of Contagem, Brazil bread and pasta plant |
|
|
(0.6 |
) |
Charges associated with restructuring actions previously announced |
|
|
1.7 |
|
|
Total |
|
$ |
31.4 |
|
|
In fiscal 2010, we decided to exit our kids refrigerated yogurt beverage product line at our
Murfreesboro, Tennessee plant and our microwave soup product line at our Vineland, New Jersey plant
to rationalize capacity for more profitable items. Our decisions to exit these U.S. Retail segment
products resulted in a $24.1 million non-cash charge against the related long-lived assets. No
employees were affected by these actions. We expect to recognize $2.1 million of other exit costs
related to these actions, which we anticipate will be completed by the end of the second quarter of
fiscal 2011. We also decided to exit our breadcrumbs product line at our Federalsburg, Maryland in
our Bakeries and Foodservice segment. As a result of this decision, we concluded that the future
cash flows generated by these products were insufficient to recover the net book value of the
associated long-lived assets. Accordingly, we recorded a non-cash charge of $6.2 million primarily
related to the impairment of these long-lived assets and in the fourth quarter of fiscal 2010, we
sold our breadcrumbs manufacturing facility in Federalsburg for $2.9 million. In fiscal 2010, we
also recorded a $0.6 million net gain on the sale of our previously closed Contagem, Brazil bread
and pasta plant for cash proceeds of $5.9 million, and recorded $1.7 million of costs related to
previously announced restructuring actions. In fiscal 2010, we paid $8 million in cash related to
restructuring actions taken in fiscal 2010 and previous years.
In fiscal 2009, we recorded restructuring, impairment, and other exit costs pursuant to approved
plans as follows:
|
|
|
|
|
Expense, in Millions |
|
|
|
|
|
Closure of Contagem, Brazil bread and pasta plant |
|
$ |
16.8 |
|
Discontinuation of product line at Murfreesboro, Tennessee plant |
|
|
8.3 |
|
Charges associated with restructuring actions previously announced |
|
|
16.5 |
|
|
Total |
|
$ |
41.6 |
|
|
In fiscal 2009, due to declining financial results, we approved the restructuring of our
International segments business in Brazil. We discontinued the production and marketing of Forno
De Minas cheese bread and Frescarini pasta brands in Brazil and closed our Contagem, Brazil
manufacturing facility. These actions affected 556 employees in our Brazilian operations. Our other
product lines in Brazil were not affected by the decision. As a result of this decision, we
incurred a charge of $16.8 million in the fourth quarter of fiscal 2009, consisting primarily of
$5.3 million of employee severance, a $10.2 million non-cash impairment charge to write down assets
to their net realizable value, and $1.3 million of other costs associated with this restructuring
action. This restructuring action was completed in the second quarter of fiscal 2010.
In fiscal 2009, due to declining net sales and to improve manufacturing capacity for other product
lines, we decided to exit our U.S. Retail segments Perfect Portions refrigerated biscuits product
line at our manufacturing facility in Murfreesboro, Tennessee. We recorded an $8.0 million non-cash
impairment charge against long lived assets used for this product line and $0.3 million of other
costs associated with this restructuring action. Our other product lines at Murfreesboro were not
affected by the decision, and no employees were affected by this action, which was completed in the
second quarter of fiscal 2010.
In fiscal 2009, we also incurred $16.5 million of incremental plant closure expenses related to
previously announced restructuring activities, including $10.3 million for the remainder of our
lease obligation at our previously closed facility in Trenton, Ontario.
64
In fiscal 2008, we recorded restructuring, impairment, and other exit costs pursuant to approved
plans as follows:
|
|
|
|
|
Expense, in Millions |
|
|
|
|
|
Closure of Poplar, Wisconsin plant |
|
$ |
2.7 |
|
Closure and sale of Allentown, Pennsylvania frozen waffle plant |
|
|
9.4 |
|
Closure of leased Trenton, Ontario frozen dough plant |
|
|
10.9 |
|
Restructuring of production scheduling and discontinuation
of cake product line at Chanhassen, Minnesota plant |
|
|
1.6 |
|
Gain on sale of previously closed Vallejo, California plant |
|
|
(7.1 |
) |
Charges associated with restructuring actions previously announced |
|
|
3.5 |
|
|
Total |
|
$ |
21.0 |
|
|
The roll forward of our restructuring and other exit cost reserves, included in other current
liabilities, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract |
|
|
Other |
|
|
|
|
In Millions |
|
Severance |
|
|
Termination |
|
|
Exit Costs |
|
|
Total |
|
|
Reserve balance as of May 27, 2007 |
|
$ |
3.4 |
|
|
$ |
|
|
|
$ |
0.9 |
|
|
$ |
4.3 |
|
2008 charges, including foreign
currency translation |
|
|
20.9 |
|
|
|
|
|
|
|
|
|
|
|
20.9 |
|
Utilized in 2008 |
|
|
(16.7 |
) |
|
|
|
|
|
|
(0.6 |
) |
|
|
(17.3 |
) |
|
Reserve balance as of May 25, 2008 |
|
|
7.6 |
|
|
|
|
|
|
|
0.3 |
|
|
|
7.9 |
|
2009 charges, including foreign
currency translation |
|
|
5.5 |
|
|
|
10.3 |
|
|
|
|
|
|
|
15.8 |
|
Utilized in 2009 |
|
|
(4.7 |
) |
|
|
|
|
|
|
(0.2 |
) |
|
|
(4.9 |
) |
|
Reserve balance as of May 31, 2009 |
|
|
8.4 |
|
|
|
10.3 |
|
|
|
0.1 |
|
|
|
18.8 |
|
2010 charges, including foreign
currency translation |
|
|
0.2 |
|
|
|
0.8 |
|
|
|
|
|
|
|
1.0 |
|
Utilized in 2010 |
|
|
(6.0 |
) |
|
|
(3.0 |
) |
|
|
|
|
|
|
(9.0 |
) |
|
Reserve balance as of May 30, 2010 |
|
$ |
2.6 |
|
|
$ |
8.1 |
|
|
$ |
0.1 |
|
|
$ |
10.8 |
|
|
The charges recognized in the roll forward of our reserves for restructuring and other exit costs
do not include items charged directly to expense (e.g., asset impairment charges, the gain or loss
on the sale of restructured assets, and the write-off of spare parts) and other periodic exit costs
recognized as incurred, as those items are not reflected in our restructuring and other exit cost
reserves on our Consolidated Balance Sheets.
NOTE 5. INVESTMENTS IN JOINT VENTURES
We have a 50 percent equity interest in Cereal Partners Worldwide (CPW), which manufactures and
markets ready-to-eat cereal products in more than 130 countries and republics outside the United
States and Canada. CPW also markets cereal bars in several European countries and manufactures
private label cereals for customers in the United Kingdom. We have guaranteed a portion of CPWs
debt and its pension obligation in the United Kingdom.
We also have a 50 percent equity interest in Häagen-Dazs Japan, Inc. (HDJ). This joint venture
manufactures, distributes, and markets Häagen-Dazs ice cream products and frozen novelties.
Results from our CPW and HDJ joint ventures are reported for the 12 months ended March 31.
During fiscal 2008, the 8th Continent soy milk business was sold, and our 50 percent share of the
after-tax gain on the sale was $2.2 million, of which $1.7 million was recorded in fiscal 2008. In
fiscal 2010 we recorded an additional gain of $0.6 million when certain conditions related to the
sale were satisfied.
65
Joint venture balance sheet activity follows:
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
Cumulative investments |
|
$ |
398.1 |
|
|
$ |
283.3 |
|
Goodwill and other intangibles |
|
|
512.6 |
|
|
|
593.9 |
|
Aggregate advances |
|
|
238.2 |
|
|
|
114.8 |
|
|
Joint venture earnings and cash flow activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Sales to joint ventures |
|
$ |
10.7 |
|
|
$ |
14.2 |
|
|
$ |
12.8 |
|
Net advances (repayments) |
|
|
128.1 |
|
|
|
(8.2 |
) |
|
|
(75.2 |
) |
Dividends received |
|
|
88.0 |
|
|
|
68.5 |
|
|
|
108.7 |
|
|
Summary combined financial information for the joint ventures on a 100 percent basis follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Net sales |
|
$ |
2,360.0 |
|
|
$ |
2,280.0 |
|
|
$ |
2,207.7 |
|
Gross margin |
|
|
1,053.2 |
|
|
|
873.5 |
|
|
|
906.6 |
|
Earnings before income taxes |
|
|
251.2 |
|
|
|
234.7 |
|
|
|
231.7 |
|
Earnings after income taxes |
|
|
202.3 |
|
|
|
175.3 |
|
|
|
190.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
Current assets |
|
$ |
731.7 |
|
|
$ |
835.4 |
|
Noncurrent assets |
|
|
907.3 |
|
|
|
895.0 |
|
Current liabilities |
|
|
1,322.0 |
|
|
|
1,394.6 |
|
Noncurrent liabilities |
|
|
112.1 |
|
|
|
66.9 |
|
|
CPW reclassified certain expenses as a reduction to net sales. To conform to the current period
presentation, CPW reduced its previously reported net sales by approximately $150 million in fiscal
2009 and $200 million in 2008. There was no effect on after-tax earnings from joint ventures in our
Consolidated Statements of Earnings.
66
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
The components of goodwill and other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
May 31, |
In Millions |
|
2010 |
|
2009 |
|
Goodwill
|
|
$ |
6,592.8 |
|
|
$ |
6,663.0 |
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
Brands
|
|
|
3,679.6 |
|
|
|
3,705.3 |
|
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
Patents, trademarks, and other finite-lived intangibles
|
|
|
54.4 |
|
|
|
56.1 |
|
Less accumulated amortization
|
|
|
(19.0 |
) |
|
|
(14.4 |
) |
|
Intangible assets subject to amortization
|
|
|
35.4 |
|
|
|
41.7 |
|
|
Other intangible assets
|
|
|
3,715.0 |
|
|
|
3,747.0 |
|
|
Total
|
|
$ |
10,307.8 |
|
|
$ |
10,410.0 |
|
|
The changes in the carrying amount of goodwill for fiscal 2008, 2009, and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bakeries and |
|
|
Joint |
|
|
|
|
In Millions |
|
U.S. Retail |
|
|
International |
|
|
Foodservice |
|
|
Ventures |
|
|
Total |
|
|
Balance as of May 27, 2007 |
|
$ |
5,202.9 |
|
|
$ |
142.2 |
|
|
$ |
981.8 |
|
|
$ |
508.5 |
|
|
$ |
6,835.4 |
|
Finalization of purchase
accounting |
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
(16.3 |
) |
|
|
(16.6 |
) |
Adoption of FIN 48 |
|
|
(110.9 |
) |
|
|
(10.6 |
) |
|
|
(30.4 |
) |
|
|
|
|
|
|
(151.9 |
) |
Other activity, primarily foreign
currency translation |
|
|
15.0 |
|
|
|
15.1 |
|
|
|
4.3 |
|
|
|
84.8 |
|
|
|
119.2 |
|
|
Balance as of May 25, 2008 |
|
|
5,107.0 |
|
|
|
146.4 |
|
|
|
955.7 |
|
|
|
577.0 |
|
|
|
6,786.1 |
|
Acquisition of Humm Foods |
|
|
41.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41.6 |
|
Divestitures |
|
|
(17.8 |
) |
|
|
(0.1 |
) |
|
|
(23.7 |
) |
|
|
|
|
|
|
(41.6 |
) |
Deferred tax adjustment related
to
divestitures |
|
|
(46.5 |
) |
|
|
(4.5 |
) |
|
|
(12.8 |
) |
|
|
|
|
|
|
(63.8 |
) |
Deferred tax adjustment resulting
from change in
acquisition-related
income tax liabilities |
|
|
14.0 |
|
|
|
1.3 |
|
|
|
3.8 |
|
|
|
|
|
|
|
19.1 |
|
Other activity, primarily foreign
currency translation |
|
|
|
|
|
|
(19.8 |
) |
|
|
|
|
|
|
(58.6 |
) |
|
|
(78.4 |
) |
|
Balance as of May 31, 2009 |
|
|
5,098.3 |
|
|
|
123.3 |
|
|
|
923.0 |
|
|
|
518.4 |
|
|
|
6,663.0 |
|
Other activity, primarily foreign
currency translation |
|
|
|
|
|
|
(1.3 |
) |
|
|
|
|
|
|
(68.9 |
) |
|
|
(70.2 |
) |
|
Balance as of May 30, 2010 |
|
$ |
5,098.3 |
|
|
$ |
122.0 |
|
|
$ |
923.0 |
|
|
$ |
449.5 |
|
|
$ |
6,592.8 |
|
|
67
The changes in the carrying amount of other intangible assets for fiscal 2008, 2009, and 2010 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint |
|
|
|
|
In Millions |
|
U.S. Retail |
|
|
International |
|
|
Ventures |
|
|
Total |
|
|
Balance as of May 27, 2007 |
|
$ |
3,175.2 |
|
|
$ |
460.9 |
|
|
$ |
57.9 |
|
|
$ |
3,694.0 |
|
Finalization of purchase accounting |
|
|
|
|
|
|
15.6 |
|
|
|
16.3 |
|
|
|
31.9 |
|
Other activity, primarily
foreign currency translation |
|
|
|
|
|
|
42.3 |
|
|
|
9.0 |
|
|
|
51.3 |
|
|
Balance as of May 25, 2008 |
|
|
3,175.2 |
|
|
|
518.8 |
|
|
|
83.2 |
|
|
|
3,777.2 |
|
Acquisition of Humm Foods |
|
|
19.4 |
|
|
|
|
|
|
|
|
|
|
|
19.4 |
|
Other activity, primarily
foreign currency translation |
|
|
14.3 |
|
|
|
(56.2 |
) |
|
|
(7.7 |
) |
|
|
(49.6 |
) |
|
Balance as of May 31, 2009 |
|
|
3,208.9 |
|
|
|
462.6 |
|
|
|
75.5 |
|
|
|
3,747.0 |
|
Other activity, primarily
foreign currency translation |
|
|
(2.3 |
) |
|
|
(17.3 |
) |
|
|
(12.4 |
) |
|
|
(32.0 |
) |
|
Balance as of May 30, 2010 |
|
$ |
3,206.6 |
|
|
$ |
445.3 |
|
|
$ |
63.1 |
|
|
$ |
3,715.0 |
|
|
NOTE 7. FINANCIAL INSTRUMENTS, RISK MANAGEMENT ACTIVITIES, AND FAIR VALUES
FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, receivables, accounts payable, other current
liabilities, and notes payable approximate fair value. Marketable securities are carried at fair
value. As of May 30, 2010, and May 31, 2009, a comparison of cost and market values of our
marketable debt and equity securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
Market Value |
|
|
Gross Gains |
|
|
Gross Losses |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
$ |
11.8 |
|
|
$ |
35.1 |
|
|
$ |
11.9 |
|
|
$ |
35.0 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
(0.2 |
) |
Equity securities |
|
|
6.1 |
|
|
|
6.1 |
|
|
|
15.5 |
|
|
|
13.8 |
|
|
|
9.4 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17.9 |
|
|
$ |
41.2 |
|
|
$ |
27.4 |
|
|
$ |
48.8 |
|
|
$ |
9.5 |
|
|
$ |
7.8 |
|
|
$ |
|
|
|
$ |
(0.2 |
) |
|
Earnings include insignificant realized gains from sales of available-for-sale marketable
securities. Gains and losses are determined by specific identification. Classification of
marketable securities as current or noncurrent is dependent upon managements intended holding
period, the securitys maturity date, or both. The aggregate unrealized gains and losses on
available-for-sale securities, net of tax effects, are classified in AOCI within stockholders
equity. Scheduled maturities of our marketable securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
|
|
|
Market |
|
In Millions |
|
Cost |
|
|
Value |
|
|
Under 1 year (current) |
|
$ |
4.8 |
|
|
$ |
4.8 |
|
From 1 to 3 years |
|
|
0.8 |
|
|
|
0.8 |
|
From 4 to 7 years |
|
|
4.1 |
|
|
|
4.1 |
|
Over 7 years |
|
|
2.1 |
|
|
|
2.2 |
|
Equity securities |
|
|
6.1 |
|
|
|
15.5 |
|
|
Total |
|
$ |
17.9 |
|
|
$ |
27.4 |
|
|
68
Marketable securities with a market value of $2.3 million as of May 30, 2010, were pledged as
collateral for certain derivative contracts.
The fair values and carrying amounts of long-term debt, including the current portion, were
$5,958.8 million and $5,375.8 million as of May 30, 2010. The fair value of long-term debt was
estimated using market quotations and discounted cash flows based on our current incremental
borrowing rates for similar types of instruments.
RISK MANAGEMENT ACTIVITIES
As a part of our ongoing operations, we are exposed to market risks such as changes in interest
rates, foreign currency exchange rates, and commodity prices. To manage these risks, we may enter
into various derivative transactions (e.g., futures, options, and swaps) pursuant to our
established policies.
COMMODITY PRICE RISK
Many commodities we use in the production and distribution of our products are exposed to market
price risks. We utilize derivatives to manage price risk for our principal ingredients and energy
costs, including grains (oats, wheat, and corn), oils (principally soybean), non-fat dry milk,
natural gas, and diesel fuel. Our primary objective when entering into these derivative contracts
is to achieve certainty with regard to the future price of commodities purchased for use in our
supply chain. We manage our exposures through a combination of purchase orders, long-term contracts
with suppliers, exchange-traded futures and options, and over-the-counter options and swaps. We
offset our exposures based on current and projected market conditions and generally seek to acquire
the inputs at as close to our planned cost as possible.
As discussed in Note 2, we do not perform the assessments required to achieve hedge accounting for
commodity derivative positions. Pursuant to this policy, unallocated corporate items for fiscal
2010 and fiscal 2009 included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Net gain (loss) on mark-to-market valuation of commodity positions |
|
$ |
(54.7 |
) |
|
$ |
(249.6 |
) |
|
$ |
115.3 |
|
Net loss (gain) on commodity positions reclassified from
unallocated corporate items to segment operating profit |
|
|
55.7 |
|
|
|
134.8 |
|
|
|
(55.7 |
) |
Net mark-to-market revaluation of certain grain inventories |
|
|
(8.1 |
) |
|
|
(4.1 |
) |
|
|
(2.6 |
) |
|
Net mark-to-market valuation of certain commodity positions
recognized in unallocated corporate items |
|
$ |
(7.1 |
) |
|
$ |
(118.9 |
) |
|
$ |
57.0 |
|
|
As of May 30, 2010, the net notional value of commodity derivatives was $464.2 million, of which
$295.2 million related to agricultural inputs and $169.0 million related to energy inputs. These
contracts relate to inputs that generally will be utilized within the next 12 months.
INTEREST RATE RISK
We are exposed to interest rate volatility with regard to future issuances of fixed-rate debt, and
existing and future issuances of floating-rate debt. Primary exposures include U.S. Treasury rates,
LIBOR, and commercial paper rates in the United States and Europe. We use interest rate swaps and
forward-starting interest rate swaps to hedge our exposure to interest rate changes, to reduce the
volatility of our financing costs, and to achieve a desired proportion of fixed-rate versus
floating-rate debt, based on current and projected market conditions. Generally under these swaps,
we agree with a counterparty to exchange the difference between fixed-rate and floating-rate
interest amounts based on an agreed upon notional principal amount.
Floating Interest Rate Exposures Except as discussed below, floating-to-fixed interest rate
swaps are accounted for as cash flow hedges, as are all hedges of forecasted issuances of debt.
Effectiveness is assessed based on either the perfectly effective hypothetical derivative method or
changes in the present value of interest payments on the
69
underlying debt. Effective gains and losses deferred to AOCI are reclassified into earnings
over the life of the associated debt. Ineffective gains and losses are recorded as net interest.
The amount of hedge ineffectiveness was less than $1 million in each of fiscal 2010, 2009 and 2008.
Fixed Interest Rate Exposures Fixed-to-floating interest rate swaps are accounted for as fair
value hedges with effectiveness assessed based on changes in the fair value of the underlying debt
and derivatives, using incremental borrowing rates currently available on loans with similar terms
and maturities. Ineffective gains and losses on these derivatives and the underlying hedged items
are recorded as net interest. The amount of hedge ineffectiveness was less than $1 million in each
of fiscal 2010, 2009 and 2008.
In advance of a planned debt financing in fiscal 2011, we entered into $500 million of treasury
lock derivatives with an average fixed rate of 4.3 percent. All of these treasury locks were cash
settled for $17.1 million coincident with the issuance of our $500 million 30-year fixed-rate
notes, which settled subsequent to our fiscal 2010 year end, on June 1, 2010. As of May 30, 2010, a
$16.8 million pre-tax loss remained in AOCI, which will be reclassified to earnings over the term
of the underlying debt.
During the second quarter of fiscal 2010 we entered into $700 million of swaps to convert $700
million of 5.65 percent fixed-rate notes due September 10, 2012, to floating rates. In May 2010, we
repurchased $179.2 million of our 5.65 percent notes, and as a result, we received $2.7 million to
settle a portion of these swaps that related to the repurchased debt.
In anticipation of our acquisition of The Pillsbury Company (Pillsbury) and other financing needs,
we entered into pay-fixed interest rate swap contracts during fiscal 2001 and 2002 totaling $7.1
billion to lock in our interest payments on the associated debt. As of May 30, 2010, we still owned
$1.6 billion of Pillsbury-related pay-fixed swaps that were previously neutralized with offsetting
pay-floating swaps in fiscal 2002.
In advance of a planned debt financing in fiscal 2007, we entered into $700.0 million pay-fixed,
forward-starting interest rate swaps with an average fixed rate of 5.7 percent. All of these
forward-starting interest rate swaps were cash settled for $22.5 million coincident with our $1.0
billion 10-year fixed-rate note offering on January 24, 2007. As of May 30, 2010, a $14.9 million
pre-tax loss remained in AOCI, which will be reclassified to earnings over the term of the
underlying debt.
The following table summarizes the notional amounts and weighted-average interest rates of our
interest rate swaps. As discussed above, we have neutralized all of our Pillsbury-related pay-fixed
swaps with pay-floating swaps; however, we cannot present them on a net basis in the following
table because the offsetting occurred with different counterparties. Average floating rates are
based on rates as of the end of the reporting period.
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
Pay-floating swaps notional amount |
|
$ |
2,155.6 |
|
|
$ |
1,859.3 |
|
Average receive rate |
|
|
4.8 |
% |
|
|
5.7 |
% |
Average pay rate |
|
|
0.3 |
% |
|
|
0.3 |
% |
Pay-fixed swaps notional amount |
|
$ |
1,600.0 |
|
|
$ |
2,250.0 |
|
Average receive rate |
|
|
0.3 |
% |
|
|
0.5 |
% |
Average pay rate |
|
|
7.3 |
% |
|
|
6.4 |
% |
|
70
The swap contracts mature at various dates from fiscal 2011 to 2013 as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Maturity Date |
In Millions |
|
Pay Floating |
|
|
Pay Fixed |
|
|
2011 |
|
$ |
17.6 |
|
|
$ |
|
|
2012 |
|
|
1,603.3 |
|
|
|
850.0 |
|
2013 |
|
|
534.7 |
|
|
|
750.0 |
|
|
Total |
|
$ |
2,155.6 |
|
|
$ |
1,600.0 |
|
|
FOREIGN EXCHANGE RISK
Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign
currency cash flows related to foreign-denominated commercial paper, third party purchases,
intercompany loans, and product shipments. We are also exposed to the translation of foreign
currency earnings to the U.S. dollar. Our principal exposures are to the Australian dollar, British
pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, and Mexican peso. We mainly
use foreign currency forward contracts to selectively hedge our foreign currency cash flow
exposures. We also generally swap our foreign-denominated commercial paper borrowings and
nonfunctional currency intercompany loans back to U.S. dollars or the functional currency; the
gains or losses on these derivatives offset the foreign currency revaluation gains or losses
recorded in earnings on the associated borrowings. We generally do not hedge more than 18 months
forward.
The amount of hedge ineffectiveness was less than $1 million in each of fiscal 2010, 2009 and 2008.
We also have many net investments in foreign subsidiaries that are denominated in euros. We hedged
a portion of these net investments by issuing euro-denominated commercial paper and foreign
exchange forward contracts. As of May 30, 2010, we had deferred net foreign currency transaction
losses of $95.7 million in accumulated other comprehensive loss (AOCI) associated with hedging
activity.
FAIR VALUE MEASUREMENTS AND FINANCIAL STATEMENT PRESENTATION
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 managements assumptions about the inputs used in
pricing the asset or liability. |
71
The fair values of our assets, liabilities, and derivative positions recorded at fair value as of
May 30, 2010, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Assets |
|
|
Fair Values of Liabilities |
In Millions |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Derivatives designated as
hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (a) (d) |
|
$ |
|
|
|
$ |
5.8 |
|
|
$ |
|
|
|
$ |
5.8 |
|
|
$ |
|
|
|
$ |
(17.1 |
) |
|
$ |
|
|
|
$ |
(17.1 |
) |
Foreign exchange contracts (b)
(c) |
|
|
|
|
|
|
8.6 |
|
|
|
|
|
|
|
8.6 |
|
|
|
|
|
|
|
(12.5 |
) |
|
|
|
|
|
|
(12.5 |
) |
|
Total |
|
|
|
|
|
|
14.4 |
|
|
|
|
|
|
|
14.4 |
|
|
|
|
|
|
|
(29.6 |
) |
|
|
|
|
|
|
(29.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as
hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (a) (d) |
|
|
|
|
|
|
124.3 |
|
|
|
|
|
|
|
124.3 |
|
|
|
|
|
|
|
(163.1 |
) |
|
|
|
|
|
|
(163.1 |
) |
Foreign exchange contracts (b) |
|
|
|
|
|
|
9.5 |
|
|
|
|
|
|
|
9.5 |
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
|
|
(1.0 |
) |
Commodity contracts (b) (f) |
|
|
|
|
|
|
7.4 |
|
|
|
|
|
|
|
7.4 |
|
|
|
(5.6 |
) |
|
|
|
|
|
|
|
|
|
|
(5.6 |
) |
|
Total |
|
|
|
|
|
|
141.2 |
|
|
|
|
|
|
|
141.2 |
|
|
|
(5.6 |
) |
|
|
(164.1 |
) |
|
|
|
|
|
|
(169.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets and liabilities
reported at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable investments (a) (e) |
|
|
15.5 |
|
|
|
11.9 |
|
|
|
|
|
|
|
27.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grain contracts (b) (f) |
|
|
|
|
|
|
11.9 |
|
|
|
|
|
|
|
11.9 |
|
|
|
|
|
|
|
(13.0 |
) |
|
|
|
|
|
|
(13.0 |
) |
Long-lived assets (g) |
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
15.5 |
|
|
|
24.2 |
|
|
|
|
|
|
|
39.7 |
|
|
|
|
|
|
|
(13.0 |
) |
|
|
|
|
|
|
(13.0 |
) |
|
Total assets, liabilities, and
derivative
positions recorded at fair value |
|
$ |
15.5 |
|
|
$ |
179.8 |
|
|
$ |
|
|
|
$ |
195.3 |
|
|
$ |
(5.6 |
) |
|
$ |
(206.7 |
) |
|
$ |
|
|
|
$ |
(212.3 |
) |
|
|
|
|
(a) |
|
These contracts and investments are recorded as other assets or as other liabilities, as
appropriate, based on whether in a gain or loss position. Certain marketable investments are
recorded as cash and cash equivalents. |
|
(b) |
|
These contracts are recorded as prepaid expenses and other current assets or as other current
liabilities, as appropriate, based on whether in a gain or loss position. |
|
(c) |
|
Based on observable market transactions of spot currency rates and forward currency prices. |
|
(d) |
|
Based on LIBOR and swap rates. |
|
(e) |
|
Based on prices of common stock and bond matrix pricing. |
|
(f) |
|
Based on prices of futures exchanges and recently reported transactions in the marketplace. |
|
(g) |
|
We recorded a $6.6 million non-cash impairment charge in fiscal 2010 to write down certain
long-lived assets to their fair value of $0.4 million. Fair value was based on recently
reported transactions for similar assets in the marketplace. These assets had a book value of
$7.0 million and were associated with the exit activities described in Note 4. |
We did not significantly change our valuation techniques from prior periods.
72
Information related to our cash flow hedges, net investment hedges, and other derivatives not
designated as hedging instruments for the fiscal years ended May 30, 2010, and May 31, 2009,
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate |
|
|
Foreign Exchange |
|
|
Equity |
|
|
Commodity |
|
|
|
|
|
|
Contracts |
|
|
Contracts |
|
|
Contracts |
|
|
Contracts |
|
|
Total |
|
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Derivatives in Cash Flow Hedging
Relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) recognized in OCI (a) |
|
$ |
(11.7 |
) |
|
$ |
(1.1 |
) |
|
$ |
(13.3 |
) |
|
$ |
9.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(25.0 |
) |
|
$ |
8.0 |
|
Amount of gain (loss) reclassified from
AOCI into earnings (a) (b) |
|
|
(18.0 |
) |
|
|
(15.8 |
) |
|
|
(26.4 |
) |
|
|
27.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44.4 |
) |
|
|
11.9 |
|
Amount of gain (loss) recognized in earnings
(c) (d) |
|
|
(0.3 |
) |
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.8 |
) |
|
|
0.2 |
|
Derivatives in Fair Value Hedging
Relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of net gain recognized in earnings (d) |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
Derivatives in Net Investment Hedging
Relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain recognized in OCI (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0 |
|
Derivatives Not Designated as Hedging
Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) recognized
in earnings (e) |
|
|
0.2 |
|
|
|
3.3 |
|
|
|
13.3 |
|
|
|
(70.2 |
) |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
(54.7 |
) |
|
|
(249.6 |
) |
|
|
(41.0 |
) |
|
|
(316.3 |
) |
|
|
|
|
(a) |
|
Effective portion. |
|
(b) |
|
Gain (loss) reclassified from AOCI into earnings is reported in interest, net for interest
rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts. |
|
(c) |
|
All gain (loss) recognized in earnings is related to the ineffective portion of the hedging
relationship. No amounts were reported as a result of being excluded from the assessment of
hedge effectiveness. |
|
(d) |
|
Net gain recognized in earnings is related to the ineffective portion of the hedging
relationship and the related hedged items. No amounts were reported as a result of being
excluded from the assessment of hedge effectiveness. |
|
(e) |
|
Gain (loss) recognized in earnings is reported in interest, net for interest rate contracts,
in cost of sales for commodity contracts, and in SG&A expenses for equity contracts. |
AMOUNTS RECORDED IN ACCUMULATED OTHER COMPREHENSIVE LOSS
Unrealized losses from interest rate cash flow hedges recorded in AOCI as of May 30, 2010, totaled
$25.1 million after tax. These deferred losses are primarily related to interest rate swaps we
entered into in contemplation of future borrowings and other financing requirements and are being
reclassified into net interest over the lives of the hedged forecasted transactions. As of May 30,
2010, we had no amounts from commodity derivatives recorded in AOCI. Unrealized losses from foreign
currency cash flow hedges recorded in AOCI as of May 30, 2010, were $3.8 million after-tax. The net
amount of pre-tax gains and losses in AOCI as of May 30, 2010, that we expect to be reclassified
into net earnings within the next 12 months is $17.5 million of expense.
CREDIT-RISK-RELATED CONTINGENT FEATURES
Certain of our derivative instruments contain provisions that require us to maintain an investment
grade credit rating on our debt from each of the major credit rating agencies. If our debt were to
fall below investment grade, the counterparties to the derivative instruments could request full
collateralization on derivative instruments in net liability positions. The aggregate fair value of
all derivative instruments with credit-risk-related contingent features that were in a liability
position on May 30, 2010, was $16.3 million. We have not posted any collateral associated with
these contracts. If the credit-risk-related contingent features underlying these agreements were
triggered on May 30, 2010, we would be required to post an additional $16.3 million of collateral
to the counterparties.
73
CONCENTRATIONS OF CREDIT AND COUNTERPARTY CREDIT RISK
During fiscal 2010, Wal-Mart Stores, Inc. and its affiliates (Wal-Mart) accounted for 23 percent of
our consolidated net sales and 30 percent of our net sales in the U.S. Retail segment. No other
customer accounted for 10 percent or more of our consolidated net sales. Wal-Mart also represented
5 percent of our net sales in the International segment and 7 percent of our net sales in the
Bakeries and Foodservice segment. As of May 30, 2010, Wal-Mart accounted for 28 percent of our U.S.
Retail receivables, 4 percent of our International receivables, and 7 percent of our Bakeries and
Foodservice receivables. The five largest customers in our U.S. Retail segment accounted for 54
percent of its fiscal 2010 net sales, the five largest customers in our International segment
accounted for 23 percent of its fiscal 2010 net sales, and the five largest customers in our
Bakeries and Foodservice segment accounted for 45 percent of its fiscal 2010 net sales.
We enter into interest rate, foreign exchange, and certain commodity and equity derivatives,
primarily with a diversified group of highly rated counterparties. We continually monitor our
positions and the credit ratings of the counterparties involved and, by policy, limit the amount of
credit exposure to any one party. These transactions may expose us to potential losses due to the
risk of nonperformance by these counterparties; however, we have not incurred a material loss. We
also enter into commodity futures transactions through various regulated exchanges.
The amount of loss due to the credit risk of the counterparties, should the counterparties fail to
perform according to the terms of the contracts, is $60.1 million against which we hold $20.0
million of collateral. Under the terms of master swap agreements, some of our transactions require
collateral or other security to support financial instruments subject to threshold levels of
exposure and counterparty credit risk. Collateral assets are either cash or U.S. Treasury
instruments and are held in a trust account that we may access if the counterparty defaults.
NOTE 8. DEBT
Notes Payable
The components of notes payable and their respective weighted-average interest rates at the end of
the periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, 2010 |
|
|
May 31, 2009 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
Notes |
|
|
Interest |
|
|
Notes |
|
|
Interest |
|
In Millions |
|
Payable |
|
|
Rate |
|
|
Payable |
|
|
Rate |
|
|
U.S. commercial paper |
|
$ |
973.0 |
|
|
|
0.3 |
% |
|
$ |
401.8 |
|
|
|
0.5 |
% |
Euro commercial paper |
|
|
|
|
|
|
|
|
|
|
275.0 |
|
|
|
0.5 |
|
Financial institutions |
|
|
77.1 |
|
|
|
10.6 |
|
|
|
135.4 |
|
|
|
12.9 |
|
|
Total |
|
$ |
1,050.1 |
|
|
|
1.1 |
% |
|
$ |
812.2 |
|
|
|
2.6 |
% |
|
To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding
short-term borrowings. Commercial paper is a continuing source of short-term financing. We issue
commercial paper in the United States and Europe. Our commercial paper borrowings are supported by
$2.9 billion of fee-paid committed credit lines, consisting of a $1.8 billion facility expiring in
October 2012 and a $1.1 billion facility expiring in October 2010. We also have $278.9 million in
uncommitted credit lines that support our foreign operations. As of May 30, 2010, there were no
amounts outstanding on the fee-paid committed credit lines and $76.5 was drawn on the uncommitted
lines. The credit facilities contain several covenants, including a requirement to maintain a fixed
charge coverage ratio of at least 2.5. We were in compliance with all credit facility covenants as
of May 30, 2010.
Long-Term Debt
In May 2010, we paid $437.0 million to repurchase in a cash tender offer $400.0 million of our
previously issued debt. We repurchased $220.8 million of our 6.0 percent notes due 2012 and $179.2
million of our 5.65 percent notes due 2012. As a result of the repurchase, we recorded interest
expense of $40.1 million which represented the
74
premium paid in the tender offer, the write-off of the remaining discount and unamortized
fees, and the settlement of related swaps. We issued commercial paper to fund the repurchase.
During fiscal 2010, we repaid $88.0 million of long-term bank debt held by wholly owned foreign
subsidiaries.
In January 2009, we issued $1.2 billion aggregate principal amount of 5.65 percent notes due 2019.
In August 2008, we issued $700.0 million aggregate principal amount of 5.25 percent notes due 2013.
The proceeds of these notes were used to repay a portion of our outstanding commercial paper.
Interest on these notes is payable semi-annually in arrears. These notes may be redeemed at our
option at any time for a specified make-whole amount. These notes are senior unsecured,
unsubordinated obligations that include a change of control repurchase provision.
In June 2010, subsequent to our fiscal 2010 year end, we issued $500.0 million aggregate principal
amount of 5.4 percent notes due 2040. The significant terms of these notes are similar to our
previously issued notes.
Certain of our long-term debt and noncontrolling interests agreements contain restrictive
covenants. As of May 30, 2010, we were in compliance with all of these covenants.
As of May 30, 2010, the $40.6 million pre-tax loss recorded in AOCI associated with our previously
designated interest rate swaps will be reclassified to net interest over the remaining lives of the
hedged transactions. The amount expected to be reclassified from AOCI to net interest in fiscal
2011 is $13.1 million pre-tax.
A summary of our long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
5.65% notes due February 15, 2019 |
|
$ |
1,150.0 |
|
|
$ |
1,150.0 |
|
6% notes due February 15, 2012 |
|
|
1,019.5 |
|
|
|
1,240.3 |
|
5.7% notes due February 15, 2017 |
|
|
1,000.0 |
|
|
|
1,000.0 |
|
5.2% notes due March 17, 2015 |
|
|
750.0 |
|
|
|
750.0 |
|
5.25% notes due August 15, 2013 |
|
|
700.0 |
|
|
|
700.0 |
|
5.65% notes due September 10, 2012 |
|
|
520.8 |
|
|
|
700.0 |
|
Medium-term notes, 4.8% to 9.1%, due fiscal 2011
or later |
|
|
204.4 |
|
|
|
204.4 |
|
Debt of consolidated contract manufacturer |
|
|
20.9 |
|
|
|
26.5 |
|
Floating-rate notes due January 22, 2010 |
|
|
|
|
|
|
500.0 |
|
Other, including capital leases |
|
|
10.2 |
|
|
|
(7.9 |
) |
|
|
|
|
5,375.8 |
|
|
|
6,263.3 |
|
Less amount due within one year |
|
|
(107.3 |
) |
|
|
(508.5 |
) |
|
Total long-term debt |
|
$ |
5,268.5 |
|
|
$ |
5,754.8 |
|
|
Principal payments due on long-term debt in the next five years based on stated contractual
maturities, our intent to redeem, or put rights of certain note holders are $107.3 million in
fiscal 2011, $1,031.3 million in fiscal 2012, $633.6 million in fiscal 2013, $702.6 million in
fiscal 2014, and $750.1 million in fiscal 2015.
NOTE 9. NONCONTROLLING INTERESTS
As discussed in Note 1, at the beginning of fiscal 2010, we adopted new accounting guidance on
noncontrolling interests in financial statements. As a result of this adoption, noncontrolling
interests, previously reported primarily as minority interests, were reclassified to a separate
section in equity on the Consolidated Balance Sheets.
Our principal noncontrolling interest relates to our subsidiary GMC. GMC issued a managing
membership interest and limited preferred membership interests to certain of our wholly owned
subsidiaries. We continue to hold the entire managing membership interest, and therefore direct the
operations of GMC. We currently hold all interests in GMC other than Class A Limited Membership
Interests (Class A Interests) which are held by an unrelated third-
75
party investor. As of May 30, 2010, the carrying value of all outstanding Class A Interests was
$242.3 million, classified as noncontrolling interests on our Consolidated Balance Sheets.
The holder of the Class A Interests receives quarterly preferred distributions from available net
income based on the application of a floating preferred return rate, currently equal to the sum of
three-month LIBOR plus 65 basis points, to the holders capital account balance established in the
most recent mark-to-market valuation (currently $248.1 million).
For financial reporting purposes, the assets, liabilities, results of operations, and cash flows of
GMC are included in our Consolidated Financial Statements. The return to the third-party investor
is reflected in net earnings attributable to noncontrolling interests in the Consolidated
Statements of Earnings.
In addition, we have 7 foreign subsidiaries that have minority interests totaling $2.8 million as
of May 30, 2010.
Our noncontrolling interests contain restrictive covenants. As of May 30, 2010, we were in
compliance with all of these covenants.
NOTE 10. STOCKHOLDERS EQUITY
Cumulative preference stock of 5.0 million shares, without par value, is authorized but unissued.
All common stock share and per share amounts have been adjusted for the two-for-one stock split on
May 28, 2010.
During fiscal 2010, we repurchased 21.3 million shares of common stock for an aggregate purchase
price of $691.8 million. During fiscal 2009, we repurchased 40.4 million shares of common stock for
an aggregate purchase price of $1,296.4 million. During fiscal 2008, we repurchased 47.8 million
shares of common stock for an aggregate purchase price of $1,384.6 million.
On December 10, 2007, our Board of Directors approved the retirement of 250.0 million shares of
common stock in treasury. This action reduced common stock by $25.0 million, reduced additional
paid-in capital by $5,055.8 million, and reduced common stock in treasury by $5,080.8 million on
our Consolidated Balance Sheets.
In fiscal 2007, our Board of Directors authorized the repurchase of up to 150 million shares of our
common stock. On June 28, 2010, our Board of Directors authorized the repurchase of up to 100
million shares of our common stock. The fiscal 2011 authorization terminated and replaced the
fiscal 2007 authorization. Purchases under the authorization can be made in the open market or in
privately negotiated transactions, including the use of call options and other derivative
instruments, Rule 10b5-1 trading plans, and accelerated repurchase programs. The authorization has
no specified termination date.
In October 2004, Lehman Brothers Holdings Inc. (Lehman Brothers) issued $750.0 million of notes,
which were mandatorily exchangeable for shares of our common stock. In connection with the issuance
of those notes, an affiliate of Lehman Brothers entered into a forward purchase contract with us,
under which we were obligated to deliver to such affiliate between 28.0 million and 34.0 million
shares of our common stock, subject to adjustment under certain circumstances. We delivered 28.6
million shares in October 2007, in exchange for $750.0 million in cash from Lehman Brothers. We
used the cash to reduce outstanding commercial paper balances.
76
The following table provides details of total comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
In Millions |
|
Pretax |
|
|
Tax |
|
|
Net |
|
|
Net earnings attributable to General Mills |
|
|
|
|
|
|
|
|
|
$ |
1,530.5 |
|
Net earnings attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to
noncontrolling interests |
|
|
|
|
|
|
|
|
|
$ |
1,535.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
$ |
(163.3 |
) |
|
$ |
|
|
|
$ |
(163.3 |
) |
Net actuarial loss arising during period |
|
|
(786.3 |
) |
|
|
314.8 |
|
|
|
(471.5 |
) |
Other fair value changes: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
1.9 |
|
|
|
(0.7 |
) |
|
|
1.2 |
|
Hedge derivatives |
|
|
(25.0 |
) |
|
|
10.6 |
|
|
|
(14.4 |
) |
Reclassification to earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives |
|
|
44.4 |
|
|
|
(17.0 |
) |
|
|
27.4 |
|
Amortization of losses and prior service costs |
|
|
19.1 |
|
|
|
(7.6 |
) |
|
|
11.5 |
|
|
Other comprehensive income (loss) in accumulated
other comprehensive loss |
|
|
(909.2 |
) |
|
|
300.1 |
|
|
|
(609.1 |
) |
Other comprehensive income attributable to
noncontrolling interests |
|
|
0.2 |
|
|
|
|
|
|
|
0.2 |
|
|
Other comprehensive income (loss) |
|
$ |
(909.0 |
) |
|
$ |
300.1 |
|
|
$ |
(608.9 |
) |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
926.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 |
|
In Millions |
|
Pretax |
|
|
Tax |
|
|
Net |
|
|
Net earnings attributable to General Mills |
|
|
|
|
|
|
|
|
|
$ |
1,304.4 |
|
Net earnings attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to
noncontrolling interests |
|
|
|
|
|
|
|
|
|
$ |
1,313.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
$ |
(286.6 |
) |
|
$ |
|
|
|
$ |
(286.6 |
) |
Net actuarial loss arising during period |
|
|
(1,254.0 |
) |
|
|
477.8 |
|
|
|
(776.2 |
) |
Other fair value changes: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
(0.6 |
) |
|
|
0.2 |
|
|
|
(0.4 |
) |
Hedge derivatives |
|
|
8.0 |
|
|
|
(3.4 |
) |
|
|
4.6 |
|
Reclassification to earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives |
|
|
(11.9 |
) |
|
|
4.6 |
|
|
|
(7.3 |
) |
Amortization of losses and prior service costs |
|
|
24.2 |
|
|
|
(9.2 |
) |
|
|
15.0 |
|
|
Other comprehensive income (loss) in accumulated
other comprehensive loss |
|
|
(1,520.9 |
) |
|
|
470.0 |
|
|
|
(1,050.9 |
) |
Other comprehensive loss attributable to
noncontrolling interests |
|
|
(1.2 |
) |
|
|
|
|
|
|
(1.2 |
) |
|
Other comprehensive income (loss) |
|
$ |
(1,522.1 |
) |
|
$ |
470.0 |
|
|
$ |
(1,052.1 |
) |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
261.6 |
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 |
|
In Millions |
|
Pretax |
|
|
Tax |
|
|
Net |
|
|
Net earnings attributable to General Mills |
|
|
|
|
|
|
|
|
|
$ |
1,294.7 |
|
Net earnings attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
23.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to
noncontrolling interests |
|
|
|
|
|
|
|
|
|
$ |
1,318.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
$ |
243.1 |
|
|
$ |
|
|
|
$ |
243.1 |
|
Minimum pension liability |
|
|
61.4 |
|
|
|
(22.0 |
) |
|
|
39.4 |
|
Other fair value changes: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
1.5 |
|
|
|
(0.6 |
) |
|
|
0.9 |
|
Hedge derivatives |
|
|
59.6 |
|
|
|
(21.3 |
) |
|
|
38.3 |
|
Reclassification to earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives |
|
|
(64.5 |
) |
|
|
23.5 |
|
|
|
(41.0 |
) |
Amortization of losses and prior service costs |
|
|
20.6 |
|
|
|
(8.1 |
) |
|
|
12.5 |
|
|
Other comprehensive income (loss) in accumulated
other comprehensive income |
|
|
321.7 |
|
|
|
(28.5 |
) |
|
|
293.2 |
|
Other comprehensive income attributable to
noncontrolling interests |
|
|
3.2 |
|
|
|
|
|
|
|
3.2 |
|
|
Other comprehensive income (loss) |
|
$ |
324.9 |
|
|
$ |
(28.5 |
) |
|
$ |
296.4 |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
1,614.5 |
|
|
During fiscal 2009, we incurred unrecognized losses in excess of $1.1 billion on assets, primarily
equity securities, in our defined benefit pension and other postretirement benefit plans. These
losses were recognized in other comprehensive income. In fiscal 2010 and future years, the losses
are reflected in pension expense using the market-related value of the plan assets over a five year
period and amortized using a declining balance method over the average remaining service period of
active plan participants.
In fiscal 2010, 2009, and 2008, except for reclassifications to earnings, changes in other
comprehensive income (loss) were primarily non-cash items.
Accumulated other comprehensive loss balances, net of tax effects, were as follows:
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
Foreign currency translation adjustments |
|
$ |
194.9 |
|
|
$ |
358.2 |
|
Unrealized gain (loss) from: |
|
|
|
|
|
|
|
|
Securities |
|
|
5.6 |
|
|
|
4.4 |
|
Hedge derivatives |
|
|
(28.9 |
) |
|
|
(41.9 |
) |
Pension, other postretirement, and postemployment benefits: |
|
|
|
|
|
|
|
|
Net actuarial loss |
|
|
(1,611.0 |
) |
|
|
(1,168.2 |
) |
Prior service costs |
|
|
(47.5 |
) |
|
|
(30.3 |
) |
|
Accumulated other comprehensive loss |
|
$ |
(1,486.9 |
) |
|
$ |
(877.8 |
) |
|
NOTE 11. STOCK PLANS
All shares and per share amounts have been adjusted for the two-for-one stock split on May 28,
2010.
We use broad-based stock plans to help ensure that managements interests are aligned with those of
our stockholders. As of May 30, 2010, a total of 24,337,402 shares were available for grant in the
form of stock options, restricted shares, restricted stock units, and shares of common stock under
the 2009 Stock Compensation Plan (2009
78
Plan) and the 2006 Compensation Plan for Non-Employee Directors (2006 Director Plan). On September
21, 2009, our stockholders approved the 2009 Plan, replacing the 2007 Stock Compensation Plan (2007
Plan). Restricted shares and restricted stock units may also be granted under our Executive
Incentive Plan (EIP) through September 25, 2010. The 2009 Plan and EIP also provide for the
issuance of cash-settled share-based units. Stock-based awards now outstanding include some granted
under the 1995, 1996, 1998 (senior management), 1998 (employee), 2001, 2003, 2005, and 2007 stock
plans, under which no further awards may be granted. The stock plans provide for full vesting of
options, restricted shares, restricted stock units, and cash-settled share-based units upon
completion of specified service periods or in certain circumstances, following a change of control.
Stock Options
The estimated fair values of stock options granted and the assumptions used for the Black-Scholes
option-pricing model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2010 |
|
2009 |
|
2008 |
|
Estimated fair values of stock options granted |
|
$ |
3.20 |
|
|
$ |
4.70 |
|
|
$ |
5.28 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
3.7 |
% |
|
|
4.4 |
% |
|
|
5.1 |
% |
Expected term |
|
8.5 years |
|
8.5 years |
|
8.5 years |
Expected volatility |
|
|
18.9 |
% |
|
|
16.1 |
% |
|
|
15.6 |
% |
Dividend yield |
|
|
3.4 |
% |
|
|
2.7 |
% |
|
|
2.7 |
% |
|
The valuation of stock options is a significant accounting estimate which 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.
We estimate the fair value of each option on the grant date using the Black-Scholes option-pricing
model, which requires us to make predictive assumptions regarding future stock price volatility,
employee exercise behavior, and dividend yield. We estimate our future stock price volatility using
the historical volatility over the expected term of the option, excluding time periods of
volatility we believe a marketplace participant would exclude in estimating our stock price
volatility. For fiscal 2010 and all future grants, we have excluded historical volatility for
fiscal 2002 and prior, primarily because volatility driven by our acquisition of Pillsbury does not
reflect what we believe to be expected future volatility. We also have considered, but did not use,
implied volatility in our estimate, because trading activity in options on our stock, especially
those with tenors of greater than 6 months, is insufficient to provide a reliable measure of
expected volatility.
Our expected term represents the period of time that options granted are expected to be outstanding
based on historical data to estimate option exercise and employee termination within the valuation
model. Separate groups of employees have similar historical exercise behavior and therefore were
aggregated into a single pool for valuation purposes. The weighted-average expected term for all
employee groups is presented in the table above. The risk-free interest rate for periods during the
expected term of the options is based on the U.S. Treasury zero-coupon yield curve in effect at the
time of grant.
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 a financing cash flow.
Realized windfall tax benefits are credited to additional paid-in capital within the Consolidated
Balance Sheets. Realized shortfall tax benefits (amounts which are less than that previously
recognized in earnings) are first offset against the cumulative balance of windfall tax benefits,
if any, and then charged directly to income tax expense, potentially resulting in volatility in our
consolidated effective income tax rate. We calculated a cumulative memo balance of windfall tax
benefits from post-1995 fiscal years for the purpose of accounting for future shortfall tax
benefits.
79
Options may be priced at 100 percent or more of the fair market value on the date of grant,
and generally vest four years after the date of grant. Options generally expire within 10 years and
one month after the date of grant.
Information on stock option activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Options |
|
|
Exercise |
|
|
Options |
|
|
Exercise |
|
|
|
Exercisable |
|
|
Price |
|
|
Outstanding |
|
|
Price |
|
|
|
(Thousands) |
|
|
Per Share |
|
|
(Thousands) |
|
|
Per Share |
|
|
Balance as of May 27, 2007 |
|
|
79,011.8 |
|
|
$ |
20.58 |
|
|
|
107,546.4 |
|
|
$ |
21.54 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
10,998.8 |
|
|
|
29.38 |
|
Exercised |
|
|
|
|
|
|
|
|
|
|
(12,270.2 |
) |
|
|
18.75 |
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
(232.6 |
) |
|
|
25.21 |
|
|
Balance as of May 25, 2008 |
|
|
76,389.2 |
|
|
|
21.23 |
|
|
|
106,042.4 |
|
|
|
22.68 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
6,495.4 |
|
|
|
31.74 |
|
Exercised |
|
|
|
|
|
|
|
|
|
|
(17,548.4 |
) |
|
|
19.60 |
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
(382.4 |
) |
|
|
27.50 |
|
|
Balance as of May 31, 2009 |
|
|
67,619.2 |
|
|
|
21.96 |
|
|
|
94,607.0 |
|
|
|
23.84 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
6,779.4 |
|
|
|
27.99 |
|
Exercised |
|
|
|
|
|
|
|
|
|
|
(20,013.6 |
) |
|
|
19.87 |
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
(268.2 |
) |
|
|
24.82 |
|
|
Balance as of May 30, 2010 |
|
|
47,726.6 |
|
|
$ |
22.89 |
|
|
|
81,104.6 |
|
|
$ |
25.17 |
|
|
Stock-based compensation expense related to stock option awards was $34.4 million in fiscal 2010,
$40.0 million in fiscal 2009, and $52.8 million in fiscal 2008.
Net cash proceeds from the exercise of stock options less shares used for withholding taxes and the
intrinsic value of options exercised were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
2009 |
|
2008 |
|
Net cash proceeds |
|
$ |
388.5 |
|
|
$ |
305.9 |
|
|
$ |
192.0 |
|
Intrinsic value of options exercised |
|
$ |
271.8 |
|
|
$ |
226.7 |
|
|
$ |
134.4 |
|
|
Restricted Stock, Restricted Stock Units, and Cash-Settled Share-Based Units
Stock and units settled in stock subject to a restricted period and a purchase price, if any (as
determined by the Compensation Committee of the Board of Directors), may be granted to key
employees under the 2009 Plan. Restricted shares and restricted stock units, up to 50 percent of
the value of an individuals cash incentive award, may also be granted through the EIP. Certain
restricted stock and restricted stock unit awards require the employee to deposit personally owned
shares (on a one-for-one basis) during the restricted period. Restricted stock and restricted stock
units generally vest and become unrestricted four years after the date of grant. Participants are
entitled to dividends on such awarded shares and units, but only receive those amounts if the
shares or units ultimately vest. The sale or transfer of these shares and units is restricted
during the vesting period. Participants holding restricted stock, but not restricted stock units,
are entitled to vote on matters submitted to holders of common stock for a vote.
80
Information on restricted stock unit and cash-settled share-based units activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Classified |
|
|
Liability Classified |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
Cash-Settled |
|
|
Weighted- |
|
|
|
Share-Settled |
|
|
Average |
|
|
Share-Settled |
|
|
Average |
|
|
Share-Based |
|
|
Average |
|
|
|
Units |
|
|
Grant-Date Fair |
|
|
Units |
|
|
Grant-Date Fair |
|
|
Units |
|
|
Grant-Date Fair |
|
|
|
(Thousands) |
|
|
Value |
|
|
(Thousands) |
|
|
Value |
|
|
(Thousands) |
|
|
Value |
|
|
Non-vested as of May 31, 2009 |
|
|
8,782.1 |
|
|
$ |
28.35 |
|
|
|
317.6 |
|
|
$ |
28.98 |
|
|
|
1,749.9 |
|
|
$ |
31.70 |
|
Granted |
|
|
2,494.3 |
|
|
|
28.12 |
|
|
|
141.0 |
|
|
|
27.92 |
|
|
|
2,110.4 |
|
|
|
27.92 |
|
Vested |
|
|
(898.3 |
) |
|
|
26.02 |
|
|
|
(17.2 |
) |
|
|
28.95 |
|
|
|
(74.3 |
) |
|
|
29.85 |
|
Forfeited or expired |
|
|
(168.3 |
) |
|
|
29.13 |
|
|
|
(17.1 |
) |
|
|
28.85 |
|
|
|
(82.3 |
) |
|
|
28.86 |
|
|
Non-vested as of May 30, 2010 |
|
|
10,209.8 |
|
|
$ |
28.49 |
|
|
|
424.3 |
|
|
$ |
28.64 |
|
|
|
3,703.7 |
|
|
$ |
29.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2010 |
|
2009 |
|
2008 |
|
Number of units granted (thousands) |
|
|
4,745.7 |
|
|
|
4,348.0 |
|
|
|
3,904.4 |
|
Weighted average price per unit |
|
$ |
28.03 |
|
|
$ |
31.70 |
|
|
$ |
29.31 |
|
|
The total grant-date fair value of restricted stock unit awards that vested during fiscal 2010 was
$26.1 million, and restricted stock unit awards with a grant-date fair value of $79.9 million
vested during fiscal 2009.
As of May 30, 2010, unrecognized compensation expense related to non-vested stock options and
restricted stock units was $187.2 million. This expense will be recognized over 21 months, on
average.
Stock-based compensation expense related to restricted stock units and cash-settled share-based
payment awards was $131.0 million for fiscal 2010, $101.4 million for fiscal 2009, and $80.4
million for fiscal 2008.
NOTE 12. EARNINGS PER SHARE
All shares and per share amounts have been adjusted for the two-for-one stock split on May 28,
2010.
Basic and diluted earnings per share (EPS) were calculated using the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions, Except per Share Data |
|
2010 |
|
2009 |
|
2008 |
|
Net earnings attributable to General Mills |
|
$ |
1,530.5 |
|
|
$ |
1,304.4 |
|
|
$ |
1,294.7 |
|
Capital appreciation paid on Series B-1 Interests in
GMC (a) |
|
|
|
|
|
|
|
|
|
|
(8.0 |
) |
|
Net earnings for basic and diluted EPS calculations |
|
$ |
1,530.5 |
|
|
$ |
1,304.4 |
|
|
$ |
1,286.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares basic EPS |
|
|
659.6 |
|
|
|
663.7 |
|
|
|
665.9 |
|
Incremental share effect from: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options (b) |
|
|
17.7 |
|
|
|
17.9 |
|
|
|
21.3 |
|
Restricted stock, restricted stock units, and other (b) |
|
|
6.0 |
|
|
|
5.5 |
|
|
|
5.6 |
|
Forward purchase contract (c) |
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
Average number of common shares diluted EPS |
|
|
683.3 |
|
|
|
687.1 |
|
|
|
693.8 |
|
|
Earnings per share basic |
|
$ |
2.32 |
|
|
$ |
1.96 |
|
|
$ |
1.93 |
|
Earnings per share diluted |
|
$ |
2.24 |
|
|
$ |
1.90 |
|
|
$ |
1.85 |
|
|
|
|
|
(a) |
|
On August 7, 2007, we repurchased all of the Series B-1 limited membership interests in GMC
for $843 million, of which $8 million related to capital appreciation paid to the third-party
holders of the interests and reduced net earnings available to common stockholders in our
basic and diluted EPS calculations. |
81
|
|
|
(b) |
|
Incremental shares from stock options and restricted stock units are computed by the treasury
stock method. Stock options and restricted stock units excluded from our computation of
diluted EPS because they were not dilutive were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Anti-dilutive stock options and restricted stock units |
|
|
6.3 |
|
|
|
14.2 |
|
|
|
9.4 |
|
|
|
|
|
(c) |
|
On October 15, 2007, we settled a forward purchase contract with Lehman Brothers by issuing
28.6 million shares of common stock. |
NOTE 13. RETIREMENT BENEFITS AND POSTEMPLOYMENT BENEFITS
Defined Benefit Pension Plans
We have defined benefit pension plans covering most domestic, Canadian, and United Kingdom
employees. Benefits for salaried employees are based on length of service and final average
compensation. Benefits for hourly employees include various monthly amounts for each year of
credited service. Our funding policy is consistent with the requirements of applicable laws. We
made $200.0 million of voluntary contributions to our principal domestic plans in fiscal 2009. We
did not make any contributions in fiscal 2010, and we do not expect to be required to make any
contributions in fiscal 2011. Our principal domestic retirement plan covering salaried employees
has a provision that any excess pension assets would be allocated to active participants if the
plan is terminated within five years of a change in control.
Other Postretirement Benefit Plans
We also sponsor plans that provide health care benefits to the majority of our domestic and
Canadian retirees. The salaried health care benefit plan is contributory, with retiree
contributions based on years of service. We make decisions to fund related trusts for certain
employees and retirees on an annual basis. We did not make voluntary contributions to these plans
in fiscal 2010 or fiscal 2009.
Health Care Cost Trend Rates
Assumed health care costs trends are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2010 |
|
|
2009 |
|
|
Health care cost trend rate for next year |
|
9.0% and 9.0% |
|
9.0% and 9.5% |
Rate to which the cost trend rate is assumed to
decline (ultimate rate) |
|
|
5.2 |
% |
|
|
5.2 |
% |
Year that the rate reaches the ultimate trend rate |
|
|
2019 |
|
|
|
2018 |
|
|
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 9.0 percent for all retirees.
Rates are graded down annually until the ultimate trend rate of 5.2 percent is reached in 2019 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.
82
A one percentage point change in the health care cost trend rate would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
One |
|
|
One |
|
|
|
Percentage |
|
|
Percentage |
|
|
|
Point |
|
|
Point |
|
In Millions |
|
Increase |
|
|
Decrease |
|
|
Effect on the aggregate of the service and
interest cost components in fiscal 2011 |
|
$ |
7.9 |
|
|
$ |
(6.8 |
) |
Effect on the other postretirement accumulated
benefit obligation as of May 30, 2010 |
|
|
96.7 |
|
|
|
(85.0 |
) |
|
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010 (collectively, the Act) was signed into law in March 2010. The Act
codifies health care reforms with staggered effective dates from 2010 to 2018. Estimates of the
future impacts of several of the Acts provisions are incorporated into our postretirement benefit
liability including the elimination of lifetime maximums and the imposition of an excise tax on
high cost health plans. These changes resulted in a $24.0 million increase in our postretirement
benefit liability as of May 30, 2010.
Postemployment Benefit Plans
Under certain circumstances, we also provide accruable benefits to former or inactive employees in
the United States, Canada, and Mexico, and members of our Board of Directors, including severance
and certain other benefits payable upon death. We recognize an obligation for any of these benefits
that vest or accumulate with service. Postemployment benefits that do not vest or accumulate with
service (such as severance based solely on annual pay rather than years of service) are charged to
expense when incurred. Our postemployment benefit plans are unfunded.
We use our fiscal year end as the measurement date for all our defined benefit pension and other
postretirement benefit plans.
83
Summarized financial information about defined benefit pension, other postretirement, and
postemployment benefits plans is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Defined Benefit |
|
|
Postretirement |
|
|
Postemployment |
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
Benefit Plans |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Change in Plan Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at beginning of year |
|
$ |
3,157.8 |
|
|
$ |
4,128.7 |
|
|
$ |
235.6 |
|
|
$ |
349.6 |
|
|
|
|
|
|
|
|
|
Actual return on assets |
|
|
535.9 |
|
|
|
(1,009.1 |
) |
|
|
41.0 |
|
|
|
(94.4 |
) |
|
|
|
|
|
|
|
|
Employer contributions |
|
|
17.1 |
|
|
|
220.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Plan participant contributions |
|
|
3.5 |
|
|
|
3.1 |
|
|
|
11.3 |
|
|
|
11.0 |
|
|
|
|
|
|
|
|
|
Benefits payments |
|
|
(182.6 |
) |
|
|
(177.4 |
) |
|
|
(3.7 |
) |
|
|
(30.7 |
) |
|
|
|
|
|
|
|
|
Foreign currency |
|
|
(1.9 |
) |
|
|
(7.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at end of year |
|
$ |
3,529.8 |
|
|
$ |
3,157.8 |
|
|
$ |
284.3 |
|
|
$ |
235.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Projected Benefit
Obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at
beginning of year |
|
$ |
3,167.3 |
|
|
$ |
3,224.1 |
|
|
$ |
852.0 |
|
|
$ |
911.3 |
|
|
$ |
112.5 |
|
|
$ |
104.6 |
|
Service cost |
|
|
70.9 |
|
|
|
76.5 |
|
|
|
12.9 |
|
|
|
14.2 |
|
|
|
7.2 |
|
|
|
6.5 |
|
Interest cost |
|
|
230.3 |
|
|
|
215.4 |
|
|
|
61.6 |
|
|
|
61.2 |
|
|
|
5.6 |
|
|
|
4.9 |
|
Plan amendment |
|
|
25.8 |
|
|
|
0.3 |
|
|
|
7.5 |
|
|
|
(1.3 |
) |
|
|
|
|
|
|
2.3 |
|
Curtailment/other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6 |
|
|
|
8.4 |
|
Plan participant contributions |
|
|
3.5 |
|
|
|
3.1 |
|
|
|
11.3 |
|
|
|
11.0 |
|
|
|
|
|
|
|
|
|
Medicare Part D reimbursements |
|
|
|
|
|
|
|
|
|
|
4.7 |
|
|
|
4.7 |
|
|
|
|
|
|
|
|
|
Actuarial loss (gain) |
|
|
716.4 |
|
|
|
(166.8 |
) |
|
|
168.1 |
|
|
|
(92.0 |
) |
|
|
11.8 |
|
|
|
1.6 |
|
Benefits payments |
|
|
(182.6 |
) |
|
|
(177.4 |
) |
|
|
(57.5 |
) |
|
|
(57.8 |
) |
|
|
(17.6 |
) |
|
|
(15.6 |
) |
Foreign currency |
|
|
(1.6 |
) |
|
|
(7.9 |
) |
|
|
|
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
Projected benefit obligation at
end of year |
|
$ |
4,030.0 |
|
|
$ |
3,167.3 |
|
|
$ |
1,060.6 |
|
|
$ |
852.0 |
|
|
$ |
130.3 |
|
|
$ |
112.5 |
|
|
Plan assets less than benefit
obligation as of fiscal year end |
|
$ |
(500.2 |
) |
|
$ |
(9.5 |
) |
|
$ |
(776.3 |
) |
|
$ |
(616.4 |
) |
|
$ |
(130.3 |
) |
|
$ |
(112.5 |
) |
|
The accumulated benefit obligation for all defined benefit plans was $3,620.3 million as of May 30,
2010, and $2,885.3 million as of May 31, 2009.
Amounts recognized in accumulated other comprehensive loss as of May 30, 2010, and May 31, 2009,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Postretirement |
|
|
Postemployment |
|
|
|
|
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
Benefit Plans |
|
|
Total |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Net actuarial loss |
|
$ |
(1,369.9 |
) |
|
$ |
(1,028.2 |
) |
|
$ |
(225.2 |
) |
|
$ |
(130.3 |
) |
|
$ |
(15.9 |
) |
|
$ |
(9.7 |
) |
|
$ |
(1,611.0 |
) |
|
$ |
(1,168.2 |
) |
Prior service
(costs) credits |
|
|
(41.3 |
) |
|
|
(29.6 |
) |
|
|
1.0 |
|
|
|
6.8 |
|
|
|
(7.2 |
) |
|
|
(7.5 |
) |
|
|
(47.5 |
) |
|
|
(30.3 |
) |
|
Amounts recorded in
accumulated other
comprehensive loss |
|
$ |
(1,411.2 |
) |
|
$ |
(1,057.8 |
) |
|
$ |
(224.2 |
) |
|
$ |
(123.5 |
) |
|
$ |
(23.1 |
) |
|
$ |
(17.2 |
) |
|
$ |
(1,658.5 |
) |
|
$ |
(1,198.5 |
) |
|
84
Plans with accumulated benefit obligations in excess of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Defined Benefit |
|
|
Postretirement |
|
|
Postemployment |
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
Benefit Plans |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Projected benefit obligation |
|
$299.6 |
|
$ |
225.2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Accumulated benefit
obligation |
|
|
252.5 |
|
|
|
194.4 |
|
|
|
1,060.6 |
|
|
|
852.0 |
|
|
|
130.3 |
|
|
|
112.5 |
|
Plan assets at fair value |
|
|
17.3 |
|
|
|
15.9 |
|
|
|
284.3 |
|
|
|
235.6 |
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit (income) costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Other Postretirement |
|
|
Postemployment |
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
Benefit Plans |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Service cost |
|
$ |
70.9 |
|
|
$ |
76.5 |
|
|
$ |
80.1 |
|
|
$ |
12.9 |
|
|
$ |
14.2 |
|
|
$ |
16.4 |
|
|
$ |
7.2 |
|
|
$ |
6.5 |
|
|
$ |
5.4 |
|
Interest cost |
|
|
230.3 |
|
|
|
215.4 |
|
|
|
196.7 |
|
|
|
61.6 |
|
|
|
61.2 |
|
|
|
58.8 |
|
|
|
5.7 |
|
|
|
4.9 |
|
|
|
3.7 |
|
Expected return on
plan assets |
|
|
(400.1 |
) |
|
|
(385.8 |
) |
|
|
(360.6 |
) |
|
|
(29.2 |
) |
|
|
(30.0 |
) |
|
|
(30.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of losses |
|
|
8.4 |
|
|
|
7.8 |
|
|
|
22.7 |
|
|
|
2.0 |
|
|
|
7.2 |
|
|
|
15.3 |
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
(0.2 |
) |
Amortization of prior
service
costs (credits) |
|
|
6.9 |
|
|
|
7.4 |
|
|
|
7.5 |
|
|
|
(1.6 |
) |
|
|
(1.4 |
) |
|
|
(1.4 |
) |
|
|
2.4 |
|
|
|
2.2 |
|
|
|
2.2 |
|
Other adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6 |
|
|
|
8.4 |
|
|
|
2.3 |
|
Settlement or
curtailment losses |
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) expense |
|
$ |
(83.6 |
) |
|
$ |
(78.7 |
) |
|
$ |
(53.3 |
) |
|
$ |
45.7 |
|
|
$ |
51.2 |
|
|
$ |
58.8 |
|
|
$ |
26.9 |
|
|
$ |
23.0 |
|
|
$ |
13.4 |
|
|
We expect to recognize the following amounts in net periodic benefit (income) costs in fiscal 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Defined Benefit |
|
|
Postretirement |
|
|
Postemployment |
|
In Millions |
|
Pension Plans |
|
|
Benefit Plans |
|
|
Benefit Plans |
|
|
Amortization of losses |
|
$ |
81.2 |
|
|
$ |
14.4 |
|
|
$ |
2.1 |
|
Amortization of prior
service costs
(credits) |
|
|
9.0 |
|
|
|
(0.6 |
) |
|
|
2.4 |
|
|
Assumptions
Weighted-average assumptions used to determine fiscal year-end benefit obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Other Postretirement |
|
|
Postemployment |
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
Benefit Plans |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Discount rate |
|
|
5.85 |
% |
|
|
7.49 |
% |
|
|
5.80 |
% |
|
|
7.45 |
% |
|
|
5.12 |
% |
|
|
7.06 |
% |
Rate of salary
increases |
|
|
4.93 |
|
|
|
4.92 |
|
|
|
|
|
|
|
|
|
|
|
4.93 |
|
|
|
4.93 |
|
|
85
Weighted-average assumptions used to determine fiscal year net periodic benefit (income) costs
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Other Postretirement |
|
|
Postemployment |
|
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
Benefit Plans |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Discount rate |
|
|
7.49 |
% |
|
|
6.88 |
% |
|
|
6.18 |
% |
|
|
7.45 |
% |
|
|
6.90 |
% |
|
|
6.15 |
% |
|
|
7.06 |
% |
|
|
6.64 |
% |
|
|
6.05 |
% |
Rate of salary increases |
|
|
4.92 |
|
|
|
4.93 |
|
|
|
4.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.93 |
|
|
|
4.93 |
|
|
|
4.39 |
|
Expected long-term rate
of
return on plan assets |
|
|
9.55 |
|
|
|
9.55 |
|
|
|
9.56 |
|
|
|
9.33 |
|
|
|
9.35 |
|
|
|
9.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rates
Our discount rate assumptions are determined annually as of the last day of our fiscal year for all
of our defined benefit pension, other postretirement, and postemployment benefit plan obligations.
We also use the same discount rates to determine defined benefit pension, other postretirement, and
postemployment benefit plan income and expense for the following fiscal year. We work with our
actuaries to determine the timing and amount of expected future cash outflows to plan participants
and, using the top quartile of AA-rated corporate bond yields, 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.
Fair Value of Plan Assets
In the fourth quarter of fiscal 2010, we adopted new accounting guidance requiring additional
disclosures for plan assets of defined benefit pension and other postretirement benefit plans. This
guidance requires that we categorize plan assets within a three level fair value hierarchy as
described in Note 7.
The fair values of our pension and postretirement benefit plan assets at May 30, 2010, by asset
category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
In Millions |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Assets |
|
|
Fair value measurement of pension plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (a) |
|
$ |
744.5 |
|
|
$ |
716.6 |
|
|
$ |
512.8 |
|
|
$ |
1,973.9 |
|
Fixed income (b) |
|
|
700.0 |
|
|
|
206.0 |
|
|
|
3.9 |
|
|
|
909.9 |
|
Real asset investments (c) |
|
|
72.4 |
|
|
|
75.8 |
|
|
|
298.7 |
|
|
|
446.9 |
|
Other investments (d) |
|
|
|
|
|
|
39.9 |
|
|
|
0.3 |
|
|
|
40.2 |
|
Cash and accruals |
|
|
158.9 |
|
|
|
|
|
|
|
|
|
|
|
158.9 |
|
|
Total fair value measurement of pension plan assets |
|
$ |
1,675.8 |
|
|
$ |
1,038.3 |
|
|
$ |
815.7 |
|
|
$ |
3,529.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement of postretirement benefit
plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (a) |
|
$ |
10.1 |
|
|
$ |
81.4 |
|
|
$ |
25.7 |
|
|
$ |
117.2 |
|
Fixed income (b) |
|
|
1.1 |
|
|
|
46.1 |
|
|
|
1.7 |
|
|
|
48.9 |
|
Real asset investments (c) |
|
|
0.1 |
|
|
|
3.7 |
|
|
|
14.6 |
|
|
|
18.4 |
|
Other investments (d) |
|
|
|
|
|
|
71.4 |
|
|
|
|
|
|
|
71.4 |
|
Cash and accruals |
|
|
28.4 |
|
|
|
|
|
|
|
|
|
|
|
28.4 |
|
|
Fair value measurement of postretirement benefit
plan assets |
|
$ |
39.7 |
|
|
$ |
202.6 |
|
|
$ |
42.0 |
|
|
$ |
284.3 |
|
|
|
|
|
|
|
(a) |
|
Primarily publicly traded common stock and private equity partnerships for purposes of total
return and to maintain equity exposure consistent with policy allocations. Investments
include: i) United States and international equity securities, mutual funds and equity futures
valued at closing prices from national exchanges; and ii) commingled funds, privately held
securities and private equity partnerships valued at unit values or net asset values provided
by the investment managers, which are based on the fair value of the underlying investments.
Various methods are used to determine fair values and may include the cost of the |
86
|
|
|
|
|
|
|
investment, most recent financing, and expected cash flows. For some of these investments,
realization of the estimated fair value is dependent upon transactions between willing sellers
and buyers. |
|
(b) |
|
Primarily government and corporate debt securities for purposes of total return and managing
fixed income exposure to policy allocations. Investments include: i) fixed income securities
and bond futures generally valued at closing prices from national exchanges, fixed income
pricing models and/or independent financial analysts; and ii) fixed commingled funds valued at
unit values provided by the investment managers, which are based on the fair value of the
underlying investments. |
|
(c) |
|
Publicly traded common stock and limited partnerships in the energy and real estate sectors
for purposes of total return. Investments include: i) energy and real estate securities
generally valued at closing prices from national exchanges; and ii) commingled funds, private
securities, and limited partnerships valued at unit values or net asset values provided by the
investment managers, which are generally based on the fair value of the underlying
investments. |
|
(d) |
|
Global balanced fund of equity, fixed income and real estate securities for purposes of
meeting Canadian pension plan asset allocation policies and insurance and annuity contracts
for purposes of providing a stable stream of income for retirees and to fund postretirement
medical benefits. Fair values are derived from unit values provided by the investment
managers, which are generally based on the fair value of the underlying investments and
contract fair values from the providers. |
The following table is a roll forward of the Level 3 investments of our pension and postretirement
benefit plan assets during the year ended May 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, Sales |
|
|
|
|
|
|
|
|
|
Balance as of |
|
|
Transfers |
|
|
Issuances, and |
|
|
Net |
|
|
Balance as of |
|
In Millions |
|
May 31, 2009 |
|
|
In/(Out) |
|
|
Settlements (Net) |
|
|
Gain/(Loss) |
|
|
May 30, 2010 |
|
|
Pension benefit plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
423.9 |
|
|
$ |
|
|
|
$ |
17.0 |
|
|
$ |
71.9 |
|
|
$ |
512.8 |
|
Fixed income |
|
|
4.2 |
|
|
|
|
|
|
|
(1.2 |
) |
|
|
0.9 |
|
|
|
3.9 |
|
Real asset investments |
|
|
275.2 |
|
|
|
|
|
|
|
25.0 |
|
|
|
(1.5 |
) |
|
|
298.7 |
|
Other investments |
|
|
0.5 |
|
|
|
|
|
|
|
(0.3 |
) |
|
|
0.1 |
|
|
|
0.3 |
|
|
Fair value activity of
pension level 3 plan assets |
|
$ |
703.8 |
|
|
$ |
|
|
|
$ |
40.5 |
|
|
$ |
71.4 |
|
|
$ |
815.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefit plan
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
23.8 |
|
|
$ |
|
|
|
$ |
(1.5 |
) |
|
$ |
3.4 |
|
|
$ |
25.7 |
|
Fixed income |
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
1.7 |
|
Real asset investments |
|
|
17.0 |
|
|
|
|
|
|
|
(0.6 |
) |
|
|
(1.8 |
) |
|
|
14.6 |
|
|
Fair value activity of
postretirement
benefit level 3 plan assets: |
|
$ |
42.3 |
|
|
$ |
|
|
|
$ |
(2.1 |
) |
|
$ |
1.8 |
|
|
$ |
42.0 |
|
|
The net change in Level 3 assets attributable to unrealized gains at May 30, 2010, were $72.2
million for our pension plan assets, and $1.2 million for our postretirement plan assets.
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.
87
Weighted-average asset allocations for the past two fiscal years for our defined benefit pension
and other postretirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Other Postretirement |
|
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Asset category: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States equities |
|
|
32.6 |
% |
|
|
29.5 |
% |
|
|
37.3 |
% |
|
|
32.6 |
% |
International equities |
|
|
17.1 |
|
|
|
19.1 |
|
|
|
18.3 |
|
|
|
18.4 |
|
Private equities |
|
|
14.7 |
|
|
|
13.6 |
|
|
|
9.9 |
|
|
|
12.0 |
|
Fixed income |
|
|
22.4 |
|
|
|
24.4 |
|
|
|
28.1 |
|
|
|
28.4 |
|
Real assets |
|
|
13.2 |
|
|
|
13.4 |
|
|
|
6.4 |
|
|
|
8.6 |
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
The investment objective for our defined benefit pension and other postretirement benefit plans is
to secure the benefit obligations to participants at a reasonable cost to us. Our goal is to
optimize the long-term return on plan assets at a moderate level of risk. The defined benefit
pension and other postretirement portfolios are broadly diversified across asset classes. Within
asset classes, the portfolios are further diversified across investment styles and investment
organizations. For the defined benefit pension and other postretirement benefit plans, the
long-term investment policy allocations are: 30 percent to equities in the United States; 20
percent to international equities; 10 percent to private equities; 30 percent to fixed income; and
10 percent to real assets (real estate, energy, and timber). The actual allocations to these asset
classes may vary tactically around the long-term policy allocations based on relative market
valuations.
Contributions and Future Benefit Payments
We do not expect to make contributions to our defined benefit, other postretirement, and
postemployment benefits plans in fiscal 2011. Actual fiscal 2011 contributions could exceed our
current projections, as influenced by our decision to undertake discretionary funding of our
benefit trusts and future changes in regulatory requirements. Estimated benefit payments, which
reflect expected future service, as appropriate, are expected to be paid from fiscal 2011-2020 as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined |
|
|
Other |
|
|
|
|
|
|
|
|
|
Benefit |
|
|
Postretirement |
|
|
Medicare |
|
|
Postemployment |
|
|
|
Pension |
|
|
Benefit Plans |
|
|
Subsidy |
|
|
Benefit |
|
In Millions |
|
Plans |
|
|
Gross Payments |
|
|
Receipts |
|
|
Plans |
|
|
2011 |
|
$ |
194.8 |
|
|
$ |
56.5 |
|
|
$ |
5.4 |
|
|
$ |
18.4 |
|
2012 |
|
|
202.8 |
|
|
|
60.9 |
|
|
|
5.8 |
|
|
|
18.4 |
|
2013 |
|
|
211.9 |
|
|
|
64.0 |
|
|
|
6.4 |
|
|
|
17.2 |
|
2014 |
|
|
221.4 |
|
|
|
66.1 |
|
|
|
6.9 |
|
|
|
15.9 |
|
2015 |
|
|
231.4 |
|
|
|
69.6 |
|
|
|
7.5 |
|
|
|
15.0 |
|
2016-2020 |
|
|
1,331.7 |
|
|
|
394.8 |
|
|
|
45.4 |
|
|
|
67.0 |
|
|
Defined Contribution Plans
The General Mills Savings Plan is a defined contribution plan that covers domestic salaried,
hourly, nonunion, and certain union employees. This plan is a 401(k) savings plan that includes a
number of investment funds, including a Company stock fund, and an Employee Stock Ownership Plan
(ESOP). We sponsor another money purchase plan for certain domestic hourly employees with net
assets of $16.8 million as of May 30, 2010, and $15.6 million as of May 31, 2009. We also sponsor
defined contribution plans in many of our foreign locations. Our total recognized expense related
to defined contribution plans was $64.5 million in fiscal 2010, $59.5 million in fiscal 2009, and
$61.9 million in fiscal 2008.
88
We matched a percentage of employee contributions to the General Mills Savings Plan with a base
match plus a variable year-end match that depended on annual results. Effective April 1, 2010, the
company match is directed to investment options of the participants choosing. Prior to April 1,
2010, the company match was invested in company stock in the ESOP fund. The number of shares of our
common stock allocated to participants in the ESOP was 5.9 million as of May 30, 2010, and 5.6
million as of May 31, 2009.
The ESOP originally purchased our common stock principally with funds borrowed from third parties
and guaranteed by us. The ESOP shares are included in net shares outstanding for the purposes of
calculating our EPS. The ESOPs third-party debt was repaid on June 30, 2007. The ESOPs only
assets are our common stock and temporary cash balances. The ESOPs share of the total defined
contribution expense was $53.7 million in fiscal 2010, $50.6 million in fiscal 2009, and $52.3
million in fiscal 2008. The ESOPs expense was calculated by the shares allocated method.
The Company stock fund and the ESOP had $610.3 million and $425.3 million of General Mills common
stock as of May 30, 2010, and May 31, 2009.
NOTE 14. INCOME TAXES
The components of earnings before income taxes and after-tax earnings from joint ventures and the
corresponding income taxes thereon are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Earnings before income taxes and
after-tax earnings from joint
ventures: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
2,060.4 |
|
|
$ |
1,717.5 |
|
|
$ |
1,646.5 |
|
Foreign |
|
|
144.1 |
|
|
|
224.7 |
|
|
|
183.0 |
|
|
Total earnings before income taxes
and
after-tax earnings from joint
ventures |
|
$ |
2,204.5 |
|
|
$ |
1,942.2 |
|
|
$ |
1,829.5 |
|
|
Income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Currently payable: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
616.0 |
|
|
$ |
457.8 |
|
|
$ |
447.7 |
|
State and local |
|
|
87.4 |
|
|
|
37.3 |
|
|
|
52.9 |
|
Foreign |
|
|
45.5 |
|
|
|
9.5 |
|
|
|
23.5 |
|
|
Total current |
|
|
748.9 |
|
|
|
504.6 |
|
|
|
524.1 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
38.5 |
|
|
|
155.7 |
|
|
|
65.9 |
|
State and local |
|
|
(4.9 |
) |
|
|
36.3 |
|
|
|
24.2 |
|
Foreign |
|
|
(11.3 |
) |
|
|
23.8 |
|
|
|
8.0 |
|
|
Total deferred |
|
|
22.3 |
|
|
|
215.8 |
|
|
|
98.1 |
|
|
Total income taxes |
|
$ |
771.2 |
|
|
$ |
720.4 |
|
|
$ |
622.2 |
|
|
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010 (collectively, the Act) was signed into law in March 2010. The federal
government currently provides a subsidy, on a tax-free basis, to companies that provide certain
retiree prescription drug benefits (the Medicare Part D subsidy). The Act reduces the tax
deductibility of retiree health cost to the extent of any Medicare Part D subsidy received
beginning in 2013. As a result of this change in tax treatment, we recorded a non-cash income tax
charge and a decrease to our deferred tax assets of $35.0 million in fiscal 2010 as of the
enactment date of the Act.
89
The following table reconciles the United States statutory income tax rate with our effective
income tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2010 |
|
2009 |
|
2008 |
|
United States statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and local income taxes, net of federal tax benefits |
|
|
2.5 |
|
|
|
2.9 |
|
|
|
3.5 |
|
Foreign rate differences |
|
|
(1.8 |
) |
|
|
(2.3 |
) |
|
|
(1.2 |
) |
Enactment date effect of health care reform |
|
|
1.3 |
|
|
|
|
|
|
|
|
|
Federal court decisions, including interest |
|
|
|
|
|
|
2.7 |
|
|
|
(1.7 |
) |
Domestic manufacturing deduction |
|
|
(1.8 |
) |
|
|
(1.1 |
) |
|
|
(1.0 |
) |
Other, net |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.6 |
) |
|
Effective income tax rate |
|
|
35.0 |
% |
|
|
37.1 |
% |
|
|
34.0 |
% |
|
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are
as follows:
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
Accrued liabilities |
|
$ |
190.4 |
|
|
$ |
160.0 |
|
Restructuring, impairment, and other exit charges |
|
|
|
|
|
|
0.4 |
|
Compensation and employee benefits |
|
|
680.6 |
|
|
|
559.9 |
|
Pension liability |
|
|
76.5 |
|
|
|
|
|
Unrealized hedge losses |
|
|
15.6 |
|
|
|
18.4 |
|
Unrealized losses |
|
|
248.6 |
|
|
|
221.7 |
|
Capital losses |
|
|
93.1 |
|
|
|
165.7 |
|
Net operating losses |
|
|
119.8 |
|
|
|
94.6 |
|
Other |
|
|
134.5 |
|
|
|
95.4 |
|
|
Gross deferred tax assets |
|
|
1,559.1 |
|
|
|
1,316.1 |
|
Valuation allowance |
|
|
392.0 |
|
|
|
440.4 |
|
|
Net deferred tax assets |
|
|
1,167.1 |
|
|
|
875.7 |
|
|
Brands |
|
|
1,279.5 |
|
|
|
1,286.6 |
|
Depreciation |
|
|
307.6 |
|
|
|
308.1 |
|
Prepaid pension asset |
|
|
|
|
|
|
81.3 |
|
Intangible assets |
|
|
107.4 |
|
|
|
102.2 |
|
Tax lease transactions |
|
|
68.7 |
|
|
|
72.6 |
|
Other |
|
|
235.8 |
|
|
|
174.6 |
|
|
Gross deferred tax liabilities |
|
|
1,999.0 |
|
|
|
2,025.4 |
|
|
Net deferred tax liability |
|
$ |
831.9 |
|
|
$ |
1,149.7 |
|
|
We have established a valuation allowance against certain of the categories of deferred tax assets
described above as current evidence does not suggest we will realize sufficient taxable income of
the appropriate character (e.g., ordinary income versus capital gain income) within the carry
forward period to allow us to realize these deferred tax benefits.
Of the total valuation allowance of $392.0 million, $168.8 million relates to a deferred tax asset
for losses recorded as part of the Pillsbury acquisition. Of the remaining valuation allowance,
$93.1 million relates to capital loss carryforwards and $119.8 million relates to state and foreign
operating loss carryforwards. As of May 30, 2010, we believe it is more likely than not that the
remainder of our deferred tax asset is realizable.
The carryforward periods on our foreign loss carryforwards are as follows: $81.2 million do not
expire; $9.8 million expire between fiscal 2011 and fiscal 2012; and $19.7 million expire between
fiscal 2013 and fiscal 2019.
90
We have not recognized a deferred tax liability for unremitted earnings of $2.1 billion from
our foreign operations because our subsidiaries have invested or will invest the undistributed
earnings indefinitely, or the earnings will be remitted in a tax-free transaction. It is
impractical for us to determine the amount of unrecognized deferred tax liabilities on these
indefinitely reinvested earnings. Deferred taxes are recorded for earnings of our foreign
operations when we determine that such earnings are no longer indefinitely reinvested.
Annually we file more than 350 income tax returns in approximately 100 global taxing jurisdictions.
A number of years may elapse before an uncertain tax position is audited and finally resolved.
While it is often difficult to predict the final outcome or the timing of resolution of any
particular uncertain tax position, we believe that our liabilities for income taxes reflect the
most likely outcome. We adjust these liabilities, as well as the related interest, in light of
changing facts and circumstances. Settlement of any particular position would usually require the
use of cash.
The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing
jurisdictions include the United States (federal and state) and Canada. We are no longer subject to
United States federal examinations by the IRS for fiscal years before 2002.
The IRS has concluded its field examination of our 2006 and prior federal tax years, which resulted
in payments of $17.6 million in fiscal 2009 and $56.5 million in fiscal 2008 to cover the
additional U.S. income tax liability plus interest related to adjustments during these audit
cycles. The IRS also proposed additional adjustments for the fiscal 2002 to 2006 audit cycles
related to the amount of capital loss and depreciation and amortization we reported as a result of
our sale of noncontrolling interest in our GMC subsidiary. The IRS has proposed adjustments that
effectively eliminate most of the tax benefits associated with this transaction. We believe our
positions are supported by substantial technical authority and are vigorously defending our
positions. We are currently in negotiations with the IRS Appeals Division for fiscal 2002 to 2006.
We have determined that a portion of this matter should be included as a tax liability and have
accordingly included it in our total liabilities for uncertain tax positions. The IRS initiated its
audit of our fiscal 2007 and 2008 tax years during fiscal 2009.
In the third quarter of fiscal 2008, we recorded an income tax benefit of $30.7 million as a result
of a favorable U.S. district court decision on an uncertain tax matter. In the third quarter of
fiscal 2009, the U.S. Court of Appeals for the Eighth Circuit issued an opinion reversing the
district court decision. As a result, we recorded $52.6 million (including interest) of income tax
expense related to the reversal of cumulative income tax benefits from this uncertain tax matter
recognized in fiscal years 1992 through 2008. We expect to make cash tax and interest payments of
approximately $31.7 million in connection with this matter.
Various tax examinations by United States state taxing authorities could be conducted for any open
tax year, which vary by jurisdiction, but are generally from 3 to 5 years. Currently, several state
examinations are in progress. The Canada Revenue Agency is conducting an audit of our income tax
returns in Canada for fiscal years 2003 (which is our earliest tax year still open for examination)
through 2005. We do not anticipate that any United States state tax or Canadian tax adjustments
will have a significant impact on our financial position or results of operations.
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 judgment related to the
expected ultimate resolution of uncertain tax positions will affect earnings in the quarter of such
change.
91
The following table sets forth changes in our total gross unrecognized tax benefit liabilities,
excluding accrued interest, for fiscal 2010. Approximately $206.4 million of this total represents
the amount that, if recognized, would affect our effective income tax rate in future periods. This
amount differs from the gross unrecognized tax benefits presented in the table because certain of
the liabilities below would impact deferred taxes if recognized or are the result of stock
compensation items impacting additional paid-in capital. We also would record a decrease in U.S.
federal income taxes upon recognition of the state tax benefits included therein.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
Balance, beginning of year |
|
$ |
570.1 |
|
|
$ |
534.6 |
|
Tax position related to current year: |
|
|
|
|
|
|
|
|
Additions |
|
|
19.7 |
|
|
|
66.8 |
|
Tax positions related to prior years: |
|
|
|
|
|
|
|
|
Additions |
|
|
7.1 |
|
|
|
48.9 |
|
Reductions |
|
|
(37.6 |
) |
|
|
(63.7 |
) |
Settlements |
|
|
(1.9 |
) |
|
|
(13.0 |
) |
Lapses in statutes of limitations |
|
|
(4.5 |
) |
|
|
(3.5 |
) |
|
Balance, end of year |
|
$ |
552.9 |
|
|
$ |
570.1 |
|
|
As of May 30, 2010, we have classified $299.0 million of the unrecognized tax benefits as a current
liability as we expect to pay these amounts within the next 12 months, including a portion of our
potential liability for the matter resolved by the U.S. Court of Appeals, as discussed above. While
fiscal years 2007 and 2008 are currently under examination by the Internal Revenue Service (IRS),
we are not able to reasonably estimate the timing of future cash flows beyond 12 months due to
uncertainties in the timing of this and other tax audit outcomes. The remaining amount of our
unrecognized tax liability was classified in other liabilities.
We report accrued interest and penalties related to unrecognized tax benefits in income tax
expense. For fiscal 2010, we recognized a net $16.2 million of tax-related net interest and
penalties, and had $174.8 million of accrued interest and penalties as of May 30, 2010.
NOTE 15. LEASES AND OTHER COMMITMENTS
An analysis of rent expense by type of property for operating leases follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Warehouse space |
|
$ |
55.7 |
|
|
$ |
51.4 |
|
|
$ |
49.9 |
|
Equipment |
|
|
30.6 |
|
|
|
39.1 |
|
|
|
28.6 |
|
Other |
|
|
51.6 |
|
|
|
49.5 |
|
|
|
43.2 |
|
|
Total rent expense |
|
$ |
137.9 |
|
|
$ |
140.0 |
|
|
$ |
121.7 |
|
|
Some operating leases require payment of property taxes, insurance, and maintenance costs in
addition to the rent payments. Contingent and escalation rent in excess of minimum rent payments
and sublease income netted in rent expense were insignificant.
92
Noncancelable future lease commitments are:
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Capital |
|
In Millions |
|
Leases |
|
|
Leases |
|
|
2011 |
|
$ |
87.4 |
|
|
$ |
1.7 |
|
2012 |
|
|
63.9 |
|
|
|
1.3 |
|
2013 |
|
|
46.8 |
|
|
|
1.1 |
|
2014 |
|
|
31.5 |
|
|
|
0.3 |
|
2015 |
|
|
22.4 |
|
|
|
0.2 |
|
After 2015 |
|
|
63.3 |
|
|
|
|
|
|
Total noncancelable future lease commitments |
|
$ |
315.3 |
|
|
$ |
4.6 |
|
|
|
|
|
|
Less: interest |
|
|
|
|
|
|
(0.5 |
) |
|
Present value of obligations under capital leases |
|
|
|
|
|
$ |
4.1 |
|
|
These future lease commitments will be partially offset by estimated future sublease receipts of
$16 million. Depreciation on capital leases is recorded as depreciation expense in our results of
operations.
As of May 30, 2010, we have issued guarantees and comfort letters of $537.5 million for the debt
and other obligations of consolidated subsidiaries, and guarantees and comfort letters of $301.6
million for the debt and other obligations of non-consolidated affiliates, mainly CPW. In addition,
off-balance sheet arrangements are generally limited to the future payments under non-cancelable
operating leases, which totaled $315.3 million as of May 30, 2010.
We are involved in various claims, including environmental matters, arising in the ordinary course
of business. In the opinion of management, the ultimate disposition of these matters, either
individually or in aggregate, will not have a material adverse effect on our financial position or
results of operations.
NOTE 16. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
We operate in the consumer foods industry. We have three operating segments by type of customer and
geographic region as follows: U.S. Retail, 69.8 percent of our fiscal 2010 consolidated net sales;
International, 18.2 percent of our fiscal 2010 consolidated net sales; and Bakeries and
Foodservice, 12.0 percent of our fiscal 2010 consolidated net sales.
Our U.S. Retail segment reflects business with a wide variety of grocery stores, mass
merchandisers, membership stores, natural food chains, and drug, dollar and discount chains
operating throughout the United States. Our major product categories in this business segment are
ready-to-eat cereals, refrigerated yogurt, ready-to-serve soup, dry dinners, shelf stable and
frozen vegetables, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza
and pizza snacks, grain, fruit and savory snacks, and a wide variety of organic products including
soup, granola bars, and cereal.
In Canada, our major product categories are ready-to-eat cereals, shelf stable and frozen
vegetables, dry dinners, refrigerated and frozen dough products, dessert and baking mixes, frozen
pizza snacks, and grain, fruit and savory snacks. In markets outside North America, our product
categories include super-premium ice cream, grain snacks, shelf stable and frozen vegetables, dough
products, and dry dinners. Our International segment also includes products manufactured in the
United States for export, mainly to Caribbean and Latin American markets, as well as products we
manufacture for sale to our international joint ventures. Revenues from export activities are
reported in the region or country where the end customer is located. These international businesses
are managed through 34 sales and marketing offices.
In our Bakeries and Foodservice segment our major product categories are cereals, snacks, yogurt,
unbaked and fully baked frozen dough products, baking mixes, and 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
93
foodservice, convenience stores, vending, and supermarket bakeries. Following our fiscal 2009
divestitures, substantially all of this segments operations are located in the United States.
Operating profit for these segments excludes unallocated corporate items, restructuring,
impairment, and other exit costs, and divestiture gains and losses. Unallocated corporate items
include variances to planned corporate overhead expenses, variances to planned domestic employee
benefits and incentives, all stock-based compensation costs, annual contributions to the General
Mills Foundation, and other items that are not part of our measurement of segment operating
performance. These include gains and losses arising from the revaluation of certain grain
inventories and gains and losses from mark-to-market valuation of certain commodity positions until
passed back to our operating segments in accordance with our policy as discussed in Note 2. These
items affecting operating profit are centrally managed at the corporate level and are excluded from
the measure of segment profitability reviewed by executive management. Under our supply chain
organization, our manufacturing, warehouse, and distribution activities are substantially
integrated across our operations in order to maximize efficiency and productivity. As a result,
fixed assets and depreciation and amortization expenses are neither maintained nor available by
operating segment.
As discussed in Note 1, we adopted new accounting guidance on noncontrolling interests at the
beginning of fiscal 2010. To conform to the current years presentation, earnings attributable to
noncontrolling interests in foreign subsidiaries of $2.1 million in fiscal 2009, and $1.4 million
in fiscal 2008, which were previously deducted from the International segments operating profit,
have been reclassified to net earnings attributable to noncontrolling interests.
Our operating segment results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Retail |
|
$ |
10,323.5 |
|
|
$ |
10,052.1 |
|
|
$ |
9,072.0 |
|
International |
|
|
2,702.5 |
|
|
|
2,591.4 |
|
|
|
2,558.8 |
|
Bakeries and Foodservice |
|
|
1,770.5 |
|
|
|
2,047.8 |
|
|
|
2,021.3 |
|
|
Total |
|
$ |
14,796.5 |
|
|
$ |
14,691.3 |
|
|
$ |
13,652.1 |
|
|
Operating profit: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Retail |
|
$ |
2,392.0 |
|
|
$ |
2,208.5 |
|
|
$ |
1,971.2 |
|
International |
|
|
219.2 |
|
|
|
263.5 |
|
|
|
270.3 |
|
Bakeries and Foodservice |
|
|
250.1 |
|
|
|
171.0 |
|
|
|
165.4 |
|
|
Total segment operating profit |
|
|
2,861.3 |
|
|
|
2,643.0 |
|
|
|
2,406.9 |
|
Unallocated corporate items |
|
|
223.8 |
|
|
|
361.3 |
|
|
|
156.7 |
|
Divestitures (gain), net |
|
|
|
|
|
|
(84.9 |
) |
|
|
|
|
Restructuring, impairment, and other exit costs |
|
|
31.4 |
|
|
|
41.6 |
|
|
|
21.0 |
|
|
Operating profit |
|
$ |
2,606.1 |
|
|
$ |
2,325.0 |
|
|
$ |
2,229.2 |
|
|
94
The following table provides financial information by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
12,077.6 |
|
|
$ |
12,057.4 |
|
|
$ |
11,036.7 |
|
Non-United States |
|
|
2,718.9 |
|
|
|
2,633.9 |
|
|
|
2,615.4 |
|
|
Total |
|
$ |
14,796.5 |
|
|
$ |
14,691.3 |
|
|
$ |
13,652.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
|
|
|
In Millions |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
Land, buildings, and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
2,619.7 |
|
|
$ |
2,555.6 |
|
|
|
|
|
Non-United States |
|
|
508.0 |
|
|
|
479.3 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,127.7 |
|
|
$ |
3,034.9 |
|
|
|
|
|
|
|
|
|
|
NOTE 17. SUPPLEMENTAL INFORMATION
The components of certain Consolidated Balance Sheet accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
Receivables: |
|
|
|
|
|
|
|
|
From customers |
|
$ |
1,057.4 |
|
|
$ |
971.2 |
|
Less allowance for doubtful accounts |
|
|
(15.8 |
) |
|
|
(17.8 |
) |
|
Total |
|
$ |
1,041.6 |
|
|
$ |
953.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
Inventories: |
|
|
|
|
|
|
|
|
Raw materials and packaging |
|
$ |
247.5 |
|
|
$ |
273.1 |
|
Finished goods |
|
|
1,131.4 |
|
|
|
1,096.1 |
|
Grain |
|
|
107.4 |
|
|
|
126.9 |
|
Excess of FIFO or weighted-average cost over LIFO cost (a) |
|
|
(142.3 |
) |
|
|
(149.3 |
) |
|
Total |
|
$ |
1,344.0 |
|
|
$ |
1,346.8 |
|
|
|
|
|
(a) |
|
Inventories of $958.3 million as of May 30, 2010, and $908.3 million as of May 31, 2009, were
valued at LIFO. |
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
Prepaid expenses and other current assets: |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
$ |
127.5 |
|
|
$ |
197.5 |
|
Accrued interest receivable, including interest rate swaps |
|
|
64.9 |
|
|
|
73.4 |
|
Derivative receivables, primarily commodity-related |
|
|
48.8 |
|
|
|
32.0 |
|
Other receivables |
|
|
101.4 |
|
|
|
87.6 |
|
Current marketable securities |
|
|
4.8 |
|
|
|
23.4 |
|
Miscellaneous |
|
|
31.1 |
|
|
|
55.4 |
|
|
Total |
|
$ |
378.5 |
|
|
$ |
469.3 |
|
|
95
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
Land, buildings, and equipment: |
|
|
|
|
|
|
|
|
Land |
|
$ |
58.0 |
|
|
$ |
55.2 |
|
Buildings |
|
|
1,653.8 |
|
|
|
1,571.8 |
|
Buildings under capital lease |
|
|
19.6 |
|
|
|
25.0 |
|
Equipment |
|
|
4,405.6 |
|
|
|
4,324.0 |
|
Equipment under capital lease |
|
|
25.0 |
|
|
|
27.7 |
|
Capitalized software |
|
|
318.7 |
|
|
|
268.0 |
|
Construction in progress |
|
|
469.0 |
|
|
|
349.2 |
|
|
Total land, buildings, and equipment |
|
|
6,949.7 |
|
|
|
6,620.9 |
|
Less accumulated depreciation |
|
|
(3,822.0 |
) |
|
|
(3,586.0 |
) |
|
Total |
|
$ |
3,127.7 |
|
|
$ |
3,034.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
May 31, |
In Millions |
|
2010 |
|
2009 |
|
Other assets: |
|
|
|
|
|
|
|
|
Pension assets
|
|
$ |
2.2 |
|
|
$ |
195.1 |
|
Investments in and advances to joint ventures
|
|
|
398.1 |
|
|
|
283.3 |
|
Life insurance
|
|
|
88.2 |
|
|
|
89.8 |
|
Non-current derivative receivables
|
|
|
130.1 |
|
|
|
189.8 |
|
Miscellaneous
|
|
|
144.8 |
|
|
|
137.0 |
|
|
Total
|
|
$ |
763.4 |
|
|
$ |
895.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
Other current liabilities: |
|
|
|
|
|
|
|
|
Accrued payroll |
|
$ |
331.4 |
|
|
$ |
338.2 |
|
Accrued interest |
|
|
136.5 |
|
|
|
182.1 |
|
Accrued trade and consumer promotions |
|
|
555.2 |
|
|
|
473.5 |
|
Accrued taxes |
|
|
440.2 |
|
|
|
168.0 |
|
Derivative payable |
|
|
18.1 |
|
|
|
25.8 |
|
Accrued customer advances |
|
|
25.5 |
|
|
|
19.3 |
|
Miscellaneous |
|
|
255.3 |
|
|
|
275.0 |
|
|
Total |
|
$ |
1,762.2 |
|
|
$ |
1,481.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, |
|
|
May 31, |
|
In Millions |
|
2010 |
|
|
2009 |
|
|
Other noncurrent liabilities: |
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
180.2 |
|
|
$ |
258.7 |
|
Accrued compensation and benefits, including
obligations for underfunded other postretirement
and postemployment benefit plans |
|
|
1,588.1 |
|
|
|
1,051.0 |
|
Accrued income taxes |
|
|
276.3 |
|
|
|
541.5 |
|
Miscellaneous |
|
|
74.1 |
|
|
|
81.0 |
|
|
Total |
|
$ |
2,118.7 |
|
|
$ |
1,932.2 |
|
|
96
Certain Consolidated Statements of Earnings amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2010 |
|
|
2009 |
|
|
|