e10vk
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 29, 2011
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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. o
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 $35.11 per share as reported on the New York Stock Exchange on November 28, 2010
(the last business day of the registrants most recently completed second fiscal quarter):
$22,432.9 million.
Number of shares of Common Stock outstanding as of June 17, 2011: 644,862,721 (excluding
109,750,607 shares held in the treasury).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement for its 2011 Annual Meeting of Stockholders are
incorporated by reference into Part III.
Table of Contents
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Page |
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Part I |
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Item 1 |
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Business |
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3 |
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Item 1A |
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Risk Factors |
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8 |
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Item 1B |
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Unresolved Staff Comments |
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Item 2 |
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Properties |
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12 |
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Item 3 |
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Legal Proceedings |
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14 |
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Item 4 |
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[Reserved] |
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14 |
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Part II |
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Item 5 |
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Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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14 |
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Item 6 |
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Selected Financial Data |
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15 |
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Item 7 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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16 |
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Item 7A |
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Quantitative and Qualitative Disclosures About Market Risk |
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40 |
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Item 8 |
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Financial Statements and Supplementary Data |
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41 |
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Item 9 |
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
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85 |
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Item 9A |
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Controls and Procedures |
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85 |
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Item 9B |
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Other Information |
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86 |
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Part III |
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Item 10 |
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Directors, Executive Officers and Corporate Governance |
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86 |
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Item 11 |
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Executive Compensation |
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86 |
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Item 12 |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13 |
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Certain Relationships and Related Transactions, and Director Independence |
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Item 14 |
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Principal Accounting Fees and Services |
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86 |
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Part IV |
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Item 15 |
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Exhibits, Financial Statement Schedules |
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86 |
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Signatures |
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2
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, refrigerated yogurt, 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, Delights, Go-GURT, Fiber One, YoPlus, Whips!, and Mountain High
Refrigerated and frozen dough products
Pillsbury, the Pillsbury Doughboy character, Grands!, Golden Layers, Big Deluxe, Toaster Strudel,
Toaster Scrambles, Simply, Savorings, Jus-Rol, Latina, Pasta Master, Wanchai Ferry, V.Pearl, and
La Salteña
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
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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:
Dora the Explorer, Disney Cars and Disney Princesses 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; |
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 Batman, Tonka, My Little Pony,
Transformers, Care Bears, 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. We use the Yoplait
and related trademarks under license from an entity in which we own a 50 percent interest and we
further license these trademarks to franchisees.
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.
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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 external conditions such as weather, product scarcity, limited sources of
supply, commodity market fluctuations, currency fluctuations, and changes in governmental
agricultural and energy policies and regulations. 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 manage 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 $235 million in fiscal 2011, $218 million in
fiscal 2010, and $208 million in fiscal 2009.
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.
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 2011, 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
6 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 29, 2011, Wal-Mart accounted for 26 percent of our U.S.
Retail receivables, 5 percent of our International receivables, and 9 percent of our Bakeries and
Foodservice receivables. The five largest customers in our U.S. Retail segment accounted for 53
percent of its fiscal 2011 net sales, the five largest customers in our International segment
accounted for 24 percent of its fiscal 2011 net sales, and the five largest customers in our
Bakeries and Foodservice segment accounted for 45 percent of its fiscal 2011 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
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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 29, 2011, was not material.
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 29, 2011, we had approximately 35,000 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 29, 2011, 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.
6
EXECUTIVE OFFICERS
The section below provides information regarding our executive officers as of July 8, 2011:
Y. Marc Belton, age 52, is Executive Vice President, Global Strategy, Growth and Marketing
Innovation. 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 2005, and has had oversight responsibility for Growth and
Marketing Innovation since 2005 and Global Strategy since 2011. Mr. Belton was elected a Vice
President of General Mills in 1991, a Senior Vice President in 1994, and an Executive Vice
President in 2006. He is a director of U.S. Bancorp.
John R. Church, age 45, 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, Engineering in 2003. In 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 55, 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 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 50, 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 2003. He was named to his present position in November 2006.
Ian R. Friendly, age 50, 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 61, 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 nine years with Coopers & Lybrand (now PricewaterhouseCoopers LLP). Mr. Lund is retiring
effective October 1, 2011.
Donal L. Mulligan, age 50, 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
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 47, 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 cereal divisions. He was promoted to Vice President in 1998 and held marketing positions in the
Betty Crocker and Pillsbury USA divisions. In 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 52, 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 59, 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, a consumer foods and products company. He spent 12
years at Sara Lee, last serving as Executive Vice President and General Counsel since 2004. Mr.
Palmore is a director of CBOE Holdings, Inc.
Kendall J. Powell, age 57, 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
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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 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.
Christina L. Shea, age 58, is Executive 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, was appointed Senior Vice President, External Relations and President, General Mills
Foundation in 2005 and was named to her present position in July 2010. Ms. Shea is retiring
effective August 1, 2011.
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 Securities Exchange Act of 1934 (1934 Act) as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and Exchange Commission
(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 seek an advantage through pricing or
promotional changes, 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 53 percent of its net sales for
fiscal 2011, the five largest customers in our International segment accounted for 24 percent of
its net sales for fiscal 2011, and the five largest customers in our Bakeries and Foodservice
segment accounted for 45 percent of its net sales for fiscal 2011. 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.
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, product scarcity, limited sources of supply, commodity market
fluctuations, currency fluctuations, and changes in governmental agricultural and energy policies
and regulations. 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.
8
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 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.
9
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 2011, 19 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; |
exchange controls and currency exchange rates; |
nationalization of operations; |
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. We may also be subject to new
laws or regulations restricting our right to advertise products, including the Interagency Working
Group on Food Marketed to Children Preliminary Proposed Nutrition Principles to Guide Industry
Self-Regulatory Efforts and other proposals to limit 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 29, 2011, we had total debt and noncontrolling interests of $7.1 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:
10
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.
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.
11
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, 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 29, 2011, we had $10.5 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, 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.
Our failure to successfully integrate acquisitions into our existing operations could adversely
affect our financial results.
From time to time, we evaluate potential acquisitions or joint ventures that would further our
strategic objectives. Our success depends, in part, upon our ability to integrate acquired and
existing operations. If we are unable to successfully integrate acquisitions, including recently
acquired Yoplait interests, our financial results could suffer. Additional potential risks
associated with acquisitions include additional debt leverage, the loss of key employees and
customers of the acquired business, the assumption of unknown liabilities, the inherent risk
associated with entering a line of business in which we have no or limited prior experience,
failure to achieve anticipated synergies, and the impairment of goodwill or other
acquisition-related intangible assets.
|
|
|
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, warehouses, and distribution centers mainly in the United
States. Other facilities are operated in Canada and elsewhere around the world.
12
As of May 29, 2011, we operated 50 facilities for the production of a wide variety of food
products. Of these facilities, 28 are located in the United States, 10 in the Asia/Pacific region
(3 of which are leased), 2 in Canada (1 of which is leased), 5 in Europe (2 of which are leased), 4
in Latin America and Mexico, 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
|
|
Albuquerque, New Mexico |
|
|
Murfreesboro, Tennessee |
International
|
|
Buenos Aires, Argentina |
|
|
Berwick, United Kingdom |
Bakeries and Foodservice
13
We operate numerous grain elevators in the United States in support of our domestic manufacturing
activities. We also utilize approximately 11 million square feet of warehouse and distribution
space, nearly all of which is leased, that primarily supports our U.S. Retail segment. We own and
lease a number of dedicated sales and administrative offices in the United States, Canada, and
elsewhere around the world, totaling approximately 3 million square feet. We have additional
warehouse, distribution, and office space in our plant locations.
As part of our Häagen-Dazs business in our International segment, we operate 268 (all leased) and
franchise 383 branded ice cream parlors in various countries around the world, all outside of the
United States and Canada.
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 29, 2011, 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 |
Our common stock is listed on the New York Stock Exchange. On June 17, 2011, 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.
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. 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.
We did not purchase any shares of our common stock during the fiscal quarter ended May 29, 2011. We
have 81.5 million shares available that may yet be purchased under the current program.
14
|
|
|
ITEM 6 |
|
Selected Financial Data |
At the beginning of fiscal 2011, we revised the classification of certain revenues and expenses to
better align our income statement line items with how we manage our business. We have revised the
classification of amounts previously reported to conform to our fiscal 2011 presentation. These
revised classifications had no effect on previously reported net earnings attributable to General
Mills or earnings per share. See Note 1 to the Consolidated Financial Statements in Item 8 of this
report for further details of the reclassifications. The following table sets forth selected
financial data for each of the fiscal years in the five-year period ended May 29, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions, Except Per Share Data, Percentages and Ratios |
|
2011 |
|
2010 |
|
2009 (a) |
|
2008 |
|
2007 |
|
Operating data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
14,880.2 |
|
|
$ |
14,635.6 |
|
|
$ |
14,555.8 |
|
|
$ |
13,548.0 |
|
|
$ |
12,303.9 |
|
Gross margin (b) |
|
|
5,953.5 |
|
|
|
5,800.2 |
|
|
|
5,174.9 |
|
|
|
4,816.2 |
|
|
|
4,412.7 |
|
Selling, general, and administrative expenses |
|
|
3,192.0 |
|
|
|
3,162.7 |
|
|
|
2,893.2 |
|
|
|
2,566.0 |
|
|
|
2,314.5 |
|
Segment operating profit (c) |
|
|
2,945.6 |
|
|
|
2,840.5 |
|
|
|
2,624.2 |
|
|
|
2,394.4 |
|
|
|
2,273.0 |
|
After-tax earnings from joint ventures |
|
|
96.4 |
|
|
|
101.7 |
|
|
|
91.9 |
|
|
|
110.8 |
|
|
|
72.7 |
|
Net earnings attributable to General Mills |
|
|
1,798.3 |
|
|
|
1,530.5 |
|
|
|
1,304.4 |
|
|
|
1,294.7 |
|
|
|
1,143.9 |
|
Depreciation and amortization |
|
|
472.6 |
|
|
|
457.1 |
|
|
|
453.6 |
|
|
|
459.2 |
|
|
|
417.8 |
|
Advertising and media expense |
|
|
843.7 |
|
|
|
908.5 |
|
|
|
732.1 |
|
|
|
587.2 |
|
|
|
491.4 |
|
Research and development expense |
|
|
235.0 |
|
|
|
218.3 |
|
|
|
208.2 |
|
|
|
204.7 |
|
|
|
191.1 |
|
Average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
642.7 |
|
|
|
659.6 |
|
|
|
663.7 |
|
|
|
665.9 |
|
|
|
693.1 |
|
Diluted |
|
|
664.8 |
|
|
|
683.3 |
|
|
|
687.1 |
|
|
|
693.8 |
|
|
|
720.4 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.80 |
|
|
$ |
2.32 |
|
|
$ |
1.96 |
|
|
$ |
1.93 |
|
|
$ |
1.65 |
|
Diluted |
|
$ |
2.70 |
|
|
$ |
2.24 |
|
|
$ |
1.90 |
|
|
$ |
1.85 |
|
|
$ |
1.59 |
|
Diluted, excluding certain items affecting
comparability (c) |
|
$ |
2.48 |
|
|
$ |
2.30 |
|
|
$ |
1.99 |
|
|
$ |
1.76 |
|
|
$ |
1.59 |
|
Operating ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a percentage of net sales |
|
|
40.0 |
% |
|
|
39.6 |
% |
|
|
35.6 |
% |
|
|
35.5 |
% |
|
|
35.9 |
% |
Selling, general, and administrative expenses as a
percentage of net sales |
|
|
21.5 |
% |
|
|
21.6 |
% |
|
|
19.9 |
% |
|
|
18.9 |
% |
|
|
18.8 |
% |
Segment operating profit as a percentage of net sales (c) |
|
|
19.8 |
% |
|
|
19.4 |
% |
|
|
18.0 |
% |
|
|
17.7 |
% |
|
|
18.5 |
% |
Effective income tax rate |
|
|
29.7 |
% |
|
|
35.0 |
% |
|
|
37.1 |
% |
|
|
34.0 |
% |
|
|
33.0 |
% |
Return on average total capital (b) (c) |
|
|
13.7 |
% |
|
|
13.8 |
% |
|
|
12.3 |
% |
|
|
11.7 |
% |
|
|
11.0 |
% |
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, buildings, and equipment |
|
$ |
3,345.9 |
|
|
$ |
3,127.7 |
|
|
$ |
3,034.9 |
|
|
$ |
3,108.1 |
|
|
$ |
3,013.9 |
|
Total assets |
|
|
18,674.5 |
|
|
|
17,678.9 |
|
|
|
17,874.8 |
|
|
|
19,041.6 |
|
|
|
18,183.7 |
|
Long-term debt, excluding current portion |
|
|
5,542.5 |
|
|
|
5,268.5 |
|
|
|
5,754.8 |
|
|
|
4,348.7 |
|
|
|
3,217.7 |
|
Total debt (b) |
|
|
6,885.1 |
|
|
|
6,425.9 |
|
|
|
7,075.5 |
|
|
|
6,999.5 |
|
|
|
6,206.1 |
|
Noncontrolling interests |
|
|
246.7 |
|
|
|
245.1 |
|
|
|
244.2 |
|
|
|
246.6 |
|
|
|
1,139.2 |
|
Stockholders equity |
|
|
6,365.5 |
|
|
|
5,402.9 |
|
|
|
5,172.3 |
|
|
|
6,212.2 |
|
|
|
5,318.7 |
|
Cash flow data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
1,526.8 |
|
|
$ |
2,181.2 |
|
|
$ |
1,828.2 |
|
|
$ |
1,729.9 |
|
|
$ |
1,751.2 |
|
Capital expenditures |
|
|
648.8 |
|
|
|
649.9 |
|
|
|
562.6 |
|
|
|
522.0 |
|
|
|
460.2 |
|
Net cash used by investing activities |
|
|
715.1 |
|
|
|
721.2 |
|
|
|
288.9 |
|
|
|
442.4 |
|
|
|
597.1 |
|
Net cash used by financing activities |
|
|
936.6 |
|
|
|
1,503.8 |
|
|
|
1,404.5 |
|
|
|
1,093.0 |
|
|
|
1,398.1 |
|
Fixed charge coverage ratio |
|
|
7.03 |
|
|
|
6.42 |
|
|
|
5.33 |
|
|
|
4.91 |
|
|
|
4.51 |
|
Operating cash flow to debt ratio (b) |
|
|
22.2 |
% |
|
|
33.9 |
% |
|
|
25.8 |
% |
|
|
24.7 |
% |
|
|
28.2 |
% |
Share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low stock price |
|
$ |
33.57 |
|
|
$ |
25.59 |
|
|
$ |
23.61 |
|
|
$ |
25.72 |
|
|
$ |
24.64 |
|
High stock price |
|
|
39.95 |
|
|
|
36.96 |
|
|
|
35.08 |
|
|
|
31.25 |
|
|
|
30.56 |
|
Closing stock price |
|
|
39.29 |
|
|
|
35.62 |
|
|
|
25.59 |
|
|
|
30.54 |
|
|
|
30.08 |
|
Cash dividends per common share |
|
|
1.12 |
|
|
|
0.96 |
|
|
|
0.86 |
|
|
|
0.78 |
|
|
|
0.72 |
|
|
|
(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. |
|
(c) |
|
See MD&A in Item 7 of this report for our discussion of this measure not defined by generally
accepted accounting principles. |
15
|
|
|
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 to
stockholders through share repurchases and dividends.
For the fiscal year ended May 29, 2011, our net sales grew 2 percent, total segment operating
profit grew 4 percent and diluted EPS grew 20 percent, however our return on average total capital
declined by 10 basis points despite these positive earnings metrics. Diluted EPS excluding certain
items affecting comparability increased 8 percent from fiscal 2010 (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 $1.5 billion in fiscal 2011, enabling us to increase our
annual dividend payments per share by 17 percent from fiscal 2010 and continue returning cash to
stockholders through share repurchases, which totaled $1.2 billion in fiscal 2011. We also made
significant capital investments totaling $649 million in fiscal 2011.
We achieved the following related to our six key operating objectives for fiscal 2011:
|
|
Net sales growth of 2 percent was primarily driven by volume gains in our International
segment and net price realization and mix. |
|
|
We achieved a 4 percent increase in total segment operating profit despite renewed input cost
inflation. |
|
|
Our gross margin as a percent of net sales was comparable to fiscal 2010. We took pricing
actions on most of our product lines in fiscal 2011 to partially offset the increases in input
costs. In addition, we continued to focus on the other elements of our holistic margin
management (HMM) program, which include cost-savings initiatives, marketing spending
efficiencies, and profitable sales mix strategies. |
|
|
We continued to invest in media and other brand-building marketing programs. However, our
total media and advertising spending decreased from fiscal 2010 levels, which increased 24
percent versus fiscal 2009. |
|
|
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 grow 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 to drive sales growth. |
Details of our financial results are provided in the Fiscal 2011 Consolidated Results of
Operations section below.
16
We expect slow improvement in the operating environment for food companies around the globe.
Although we believe the environment will remain challenging in fiscal 2012, we expect to deliver
another year of quality growth. Excluding the effects of our acquisition of interests in Yoplait
S.A.S. and Yoplait Marques S.A.S., we expect to achieve these results:
|
|
We are targeting mid single-digit growth in net sales primarily driven by net price
realization, as our plans assume a modest decline in pound volume. |
|
|
We have a strong line-up of consumer marketing, merchandising, and innovation planned to
support our leading brands. We will continue to build our global platforms in markets around
the world, accelerating our efforts in rapidly growing emerging markets. |
|
|
We are targeting low single-digit growth in total segment operating profit in fiscal 2012, as
we expect our HMM discipline of cost savings, mix management and price realization to largely
offset an expected 10 to 11 percent increase in input costs. |
Our businesses generate strong levels of cash flows. We use some of this cash to reinvest in our
business. Our fiscal 2012 plans call for $670 million of expenditures for capital projects,
excluding expenditures that may be required for Yoplait S.A.S. On June 28, 2011, our Board of
Directors approved a dividend increase to an annual rate of $1.22 per share, a 9 percent increase
from the rate paid in fiscal 2011.
As a result of the acquisition of interests in Yoplait entities, we expect to reduce our level of
share repurchases in fiscal 2012. We expect that share repurchases will offset normal levels of
stock option exercises in fiscal 2012.
Certain terms used throughout this report are defined in a glossary in Item 8 of this report.
FISCAL 2011 CONSOLIDATED RESULTS OF OPERATIONS
In fiscal 2011, net earnings attributable to General Mills was $1,798 million, up 18 percent from
$1,530 million in fiscal 2010, and we reported diluted EPS of $2.70 in fiscal 2011, up 20 percent
from $2.24 in fiscal 2010. Fiscal 2011 results include gains from the mark-to-market valuation of
certain commodity positions and grain inventories versus fiscal 2010 which included losses. Fiscal
2011 results also include the net benefit from the resolution of uncertain tax matters, and fiscal
2010 results include income tax expense related to the enactment of federal health care reform.
Diluted EPS excluding these items affecting comparability was $2.48 in fiscal 2011, up 8 percent
from $2.30 in fiscal 2010 (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 2011 |
|
|
vs. 2010 |
|
Contributions from volume growth (a) |
|
1 pt |
Net price realization and mix |
|
1 pt |
Foreign currency exchange |
|
Flat |
|
Net sales growth |
|
2 pts |
|
|
(a) |
|
Measured in tons based on the stated weight of our product shipments. |
Net sales grew 2 percent in fiscal 2011, due to 1 percentage point of volume growth and 1
percentage point of growth from net price realization and mix. Foreign exchange was flat compared
to fiscal 2010.
Cost of sales increased $91 million in fiscal 2011 to $8,927 million. This increase was driven by
$157 million higher net input costs and product mix and an $84 million increase attributable to
higher volume, partially offset by a $95 million net decrease 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
$7 million in fiscal 2010. In fiscal 2010, we recorded a charge of $48 million resulting from a
change in the capitalization threshold for certain equipment parts.
Gross margin grew 3 percent in fiscal 2011 versus fiscal 2010. Gross margin as a percent of net
sales increased by 40 basis points from fiscal 2010 to fiscal 2011. These improvements were
primarily driven by gains from the mark-to-market valuation of certain commodity positions and
grain inventories in fiscal 2011 versus losses in fiscal 2010.
Selling, general and administrative (SG&A) expenses were up $29 million in fiscal 2011 versus
fiscal 2010, while SG&A expenses
17
as a percent of net sales remained essentially flat from fiscal 2010 to fiscal 2011. The increase
in SG&A expenses was primarily driven by a $69 million increase in corporate pension expense
partially offset by a 7 percent decrease in advertising and media expense. In fiscal 2010, the
Venezuelan government devalued the bolivar fuerte exchange rate against the U.S. dollar. The $14
million foreign exchange loss resulting from the devaluation was substantially offset by a $13
million recovery against a corporate investment.
During fiscal 2011, we recorded a net divestiture gain of $17 million. We recorded a gain of $14
million related to the sale of a foodservice frozen baked goods product line in our International
segment and a gain of $3 million related to the sale of a pie shell product line in our Bakeries
and Foodservice segment. There were no divestitures in fiscal 2010.
Interest, net for fiscal 2011 totaled $346 million, $55 million lower than fiscal 2010. The average
interest rate on our total outstanding debt was 5.6 percent in fiscal 2011 compared to 6.3 percent
in fiscal 2010, generating a $45 million decrease in net interest. Average interest bearing
instruments increased $474 million in fiscal 2011, primarily due to more share repurchases than in
fiscal 2010, leading to a $30 million increase in net interest. 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 remaining discount and unamortized fees, and the settlement of related swaps.
Restructuring, impairment, and other exit costs totaled $4 million in fiscal 2011 as follows:
|
|
|
|
|
Expense, in Millions |
|
|
|
|
|
Discontinuation of underperforming product line in our U.S. Retail
segment |
|
$ |
1.7 |
|
Charges associated with restructuring actions previously announced |
|
|
2.7 |
|
|
Total |
|
$ |
4.4 |
|
|
In fiscal 2011, we decided to exit an underperforming product line in our U.S. Retail segment. As a
result of this decision, we concluded that the future cash flows generated by this product line
were insufficient to recover the net book value of the associated long-lived assets. Accordingly,
we recorded a non-cash charge of $2 million related to the impairment of the associated long-lived
assets. No employees were affected by these actions. In addition, we recorded $3 million of charges
associated with restructuring actions previously announced. In fiscal 2011, we paid $6 million in
cash related to restructuring actions taken in fiscal 2011 and previous years.
Our consolidated effective tax rate for fiscal 2011 was 29.7 percent compared to 35.0 percent in
fiscal 2010. The 5.3 percentage point decrease was primarily due to a $100 million reduction to tax
expense recorded in fiscal 2011 related to a settlement with the Internal Revenue Service (IRS)
concerning corporate income tax adjustments for fiscal years 2002 to 2008. The adjustments
primarily relate to the amount of capital loss, depreciation, and amortization we reported as a
result of the sale of noncontrolling interests in our General Mills Cereals, LLC (GMC) subsidiary.
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 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).
After-tax earnings from joint ventures for fiscal 2011 decreased to $96 million compared to $102
million in fiscal 2010. The decrease is primarily due to higher advertising and media spending and
increased service cost allocations, all in CPW. In fiscal 2011, CPW net sales grew by 3 percent due
to a 2 percentage point increase in volume and a 1 percentage point increase from favorable foreign
exchange. Net price realization and mix was flat compared to fiscal 2010. Net sales for HDJ
increased 4 percent from fiscal 2010 primarily due to 9 percentage points of favorable foreign
exchange, partially offset by a 5 percentage point decline in net price realization and mix. Volume
was flat compared to fiscal 2010.
Average diluted shares outstanding decreased by 18 million in fiscal 2011 from fiscal 2010, due
primarily to the repurchase of 32 million shares since the end of fiscal 2010, partially offset by
the issuance of shares upon stock option exercises.
FISCAL 2011 CONSOLIDATED BALANCE SHEET ANALYSIS
Cash and cash equivalents decreased $54 million from fiscal 2010, as discussed in the Liquidity
section below.
Receivables increased $121 million from fiscal 2010 as a result of foreign currency translation
effects of $44 million and sales timing shifts. The allowance for doubtful accounts was essentially
unchanged from fiscal 2010.
Inventories increased $265 million from fiscal 2010 primarily as a result of increased commodity
prices.
18
Prepaid expenses and other current assets increased $105 million from fiscal 2010, due mainly to
increases in derivatives receivable balances.
Land, buildings, and equipment increased $218 million from fiscal 2010, as capital expenditures of
$649 million and a foreign currency translation impact of $55 million were partially offset by
depreciation expense of $462 million in fiscal 2011.
Goodwill and other intangible assets increased $256 million from fiscal 2010 primarily due to
foreign currency translation of $148 million and the acquisitions of the Mountain High yoghurt
business and the Pasta Master meals business. We recorded $72 million of goodwill and $45 million
of other intangible assets related to these transactions.
Other assets increased $99 million from fiscal 2010, driven mainly by a $126 million increase in
our prepaid pension assets and a $121 million increase in our investment and advances to joint
ventures, partially offset by a decrease of $117 million in non-current interest rate derivatives
receivable.
Accounts payable increased $146 million to $995 million in fiscal 2011, primarily due to shifts in
timing of payments.
Long-term debt, including current portion, and notes payable increased $459 million from fiscal
2010 primarily due to the issuance of $1.2 billion of long-term debt in fiscal 2011, partially
offset by a $739 million decrease in notes payable.
The current and noncurrent portions of net deferred income taxes liability increased $268 million
from fiscal 2010 due to contributions to our defined benefit pension plans and book versus tax
depreciation differences.
Other current liabilities decreased $441 million from fiscal 2010, primarily driven by decreases in
accrued taxes of $360 million and a $136 million decrease in consumer marketing accruals.
Other liabilities decreased $386 million from fiscal 2010, driven by a decrease of $175 million in
pension and postretirement liabilities, a decrease of $158 million in non-current derivatives
payable, and a decrease of $43 million in non-current accrued taxes payable.
Retained earnings increased $1,069 million from fiscal 2010, reflecting fiscal 2011 net earnings of
$1,798 million less dividends paid of $729 million. Treasury stock increased $595 million from
fiscal 2010, due to $1,164 million of share repurchases, partially offset by $568 million related
to stock-based compensation plans. Additional paid in capital increased $13 million from fiscal
2010, due to stock compensation plan activity. Accumulated other comprehensive loss (AOCI)
decreased by $476 million after-tax from fiscal 2010, primarily driven by foreign currency
translation of $358 million and pension and postemployment activity of $128 million.
FISCAL 2010 CONSOLIDATED RESULTS OF OPERATIONS
Net earnings attributable to General Mills were $1,530 million in fiscal 2010, 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 was $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. |
19
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 $546 million in fiscal 2010 to $8,835 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 400 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 $270 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 fuerte 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 remaining discount and unamortized fees, and the settlement of related swaps.
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 recognized $2 million of other exit costs and
completed these actions in 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 in
fiscal 2009 on an uncertain tax matter, which increased fiscal 2009 income
20
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. 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.
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 2011, 2010, and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2011 |
|
2010 |
|
2009 |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
In Millions | |
Dollars |
|
|
Total |
|
|
Dollars |
|
|
Total |
|
|
Dollars |
|
|
Total |
|
Net
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Retail |
|
$ |
10,163.9 |
|
|
|
69 |
% |
|
$ |
10,209.8 |
|
|
|
70 |
% |
|
$ |
9,973.6 |
|
|
|
68 |
% |
International |
|
|
2,875.5 |
|
|
|
19 |
|
|
|
2,684.9 |
|
|
|
18 |
|
|
|
2,571.8 |
|
|
|
18 |
|
Bakeries and
Foodservice |
|
|
1,840.8 |
|
|
|
12 |
|
|
|
1,740.9 |
|
|
|
12 |
|
|
|
2,010.4 |
|
|
|
14 |
|
|
Total |
|
$ |
14,880.2 |
|
|
|
100 |
% |
|
$ |
14,635.6 |
|
|
|
100 |
% |
|
$ |
14,555.8 |
|
|
|
100 |
% |
|
|
Segment Operating
Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Retail |
|
$ |
2,347.9 |
|
|
|
80 |
% |
|
$ |
2,385.2 |
|
|
|
84 |
% |
|
$ |
2,206.6 |
|
|
|
84 |
% |
International |
|
|
291.4 |
|
|
|
10 |
|
|
|
192.1 |
|
|
|
7 |
|
|
|
239.2 |
|
|
|
9 |
|
Bakeries and
Foodservice |
|
|
306.3 |
|
|
|
10 |
|
|
|
263.2 |
|
|
|
9 |
|
|
|
178.4 |
|
|
|
7 |
|
|
Total |
|
$ |
2,945.6 |
|
|
|
100 |
% |
|
$ |
2,840.5 |
|
|
|
100 |
% |
|
$ |
2,624.2 |
|
|
|
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 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.
21
Components of net sales growth are shown in the following table:
Components of U.S. Retail Net Sales Growth
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
|
vs. 2010 |
|
|
vs. 2009 |
|
|
Contributions from volume growth (a) |
|
Flat |
|
|
1 pt |
|
Net price realization and mix |
|
Flat |
|
|
1 pt |
|
|
Net sales growth |
|
Flat |
|
|
2 pts |
|
|
|
|
|
(a) |
|
Measured in tons based on the stated weight of our product shipments. |
In fiscal 2011, net sales for our U.S. Retail segment were $10.2 billion, flat compared to fiscal
2010. Volume on a tonnage basis and net price realization and mix were both flat compared to fiscal
2011.
Net sales for this segment totaled $10.2 billion in fiscal 2010 and $10.0 billion in fiscal 2009.
Net price realization and mix added 1 percentage point 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 our U.S. retail divisions are shown in the tables below:
U.S. Retail Net Sales by Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Big G |
|
$ |
2,293.6 |
|
|
$ |
2,351.3 |
|
|
$ |
2,231.9 |
|
Meals |
|
|
2,131.8 |
|
|
|
2,146.0 |
|
|
|
2,139.6 |
|
Pillsbury |
|
|
1,823.9 |
|
|
|
1,858.2 |
|
|
|
1,851.9 |
|
Yoplait |
|
|
1,499.0 |
|
|
|
1,491.2 |
|
|
|
1,471.0 |
|
Snacks |
|
|
1,378.3 |
|
|
|
1,315.8 |
|
|
|
1,237.7 |
|
Baking Products |
|
|
808.6 |
|
|
|
845.2 |
|
|
|
842.6 |
|
Small Planet Foods and other |
|
|
228.7 |
|
|
|
202.1 |
|
|
|
198.9 |
|
|
Total |
|
$ |
10,163.9 |
|
|
$ |
10,209.8 |
|
|
$ |
9,973.6 |
|
|
U.S. Retail Net Sales Percentage Change by Division
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
|
vs. 2010 |
|
|
vs. 2009 |
|
|
Big G |
|
|
(2 |
)% |
|
|
5 |
% |
Meals |
|
|
(1 |
) |
|
Flat |
|
Pillsbury |
|
|
(2 |
) |
|
Flat |
|
Yoplait |
|
|
1 |
|
|
|
1 |
|
Snacks |
|
|
5 |
|
|
|
6 |
|
Baking Products |
|
|
(4 |
) |
|
Flat |
|
Small Planet Foods |
|
|
13 |
|
|
|
3 |
|
|
Total |
|
Flat |
|
|
|
2 |
% |
|
In fiscal 2011, net sales for Big G cereals declined 2 percent from last year which included
Chocolate Cheerios and Wheaties Fuel introductory volume. Meals division net sales decreased 1
percent as Helper dinner mixes and Green Giant canned vegetables declines were partially offset by
growth in Old El Paso Mexican products, Progresso ready-to-serve soups and Wanchai Ferry and
Macaroni Grill frozen entrees. Pillsbury net sales declined 2 percent due to sales declines in
Totinos pizza. Net sales for Yoplait grew 1 percent including the acquisition of the Mountain High
yoghurt business. Snacks net sales grew 5 percent, driven by Nature Valley and Fiber One grain
snack bars. Net sales for Baking Products declined 4 percent. Small Planet Foods net sales were up
13 percent driven by double-digit growth for Lärabar fruit and nut energy bars.
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 were flat, as gains from Green Giant
22
frozen vegetables and Old El Paso Mexican products were offset by lower sales of Progresso
ready-to-serve soups. Pillsbury net sales were flat, including gains on Totinos pizza and Pizza
Rolls snacks and Pillsbury Toaster Strudel pastries offset by lower sales for Pillsbury
refrigerated baked goods. Net sales for Yoplait grew 1 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.
Segment operating profit of $2.3 billion in fiscal 2011 declined $37 million, or 2 percent, from
fiscal 2010. The decrease was primarily driven by unfavorable supply chain costs of $81 million,
partially offset by a 9 percent reduction in advertising and media expense.
Segment operating profit of $2.4 billion in fiscal 2010 improved $179 million, or 8 percent, over
fiscal 2009. The increase was primarily driven by favorable supply chain costs of $238 million, net
price realization and mix of $106 million, and volume growth of $54 million, partially offset by a
22 percent increase in advertising and media expense and higher administrative costs.
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 and fruit snacks. In markets outside North America, our product categories
include super-premium ice cream and frozen desserts, refrigerated yogurt, grain snacks, shelf
stable and frozen vegetables, refrigerated and frozen 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.
Components of net sales growth are shown in the following table:
Components of International Net Sales Growth
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
|
vs. 2010 |
|
|
vs. 2009 |
|
|
Contributions from volume growth (a) |
|
6 pts |
|
|
Flat |
|
Net price realization and mix |
|
1 pt |
|
|
3 pts |
|
Foreign currency exchange |
|
Flat |
|
|
1 pt |
|
|
Net sales growth |
|
7 pts |
|
|
4 pts |
|
|
|
|
|
(a) |
|
Measured in tons based on the stated weight of our product shipments. |
In fiscal 2011, net sales for our International segment were $2,876 million, up 7 percent from
fiscal 2010. This growth was driven by 6 percentage points of contributions from volume and 1
percentage point from net price realization and mix. Foreign currency exchange was flat compared
to fiscal 2010.
Net sales totaled $2,685 million in fiscal 2010, up 4 percent from $2,572 million in fiscal 2009.
The growth in fiscal 2010 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 for our International segment by geographic region are shown in the following tables:
International Net Sales by Geographic Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Europe |
|
$ |
905.5 |
|
|
$ |
859.6 |
|
|
$ |
849.1 |
|
Canada |
|
|
769.9 |
|
|
|
709.9 |
|
|
|
645.9 |
|
Asia/Pacific |
|
|
822.9 |
|
|
|
720.0 |
|
|
|
634.5 |
|
Latin America |
|
|
377.2 |
|
|
|
395.4 |
|
|
|
442.3 |
|
|
Total |
|
$ |
2,875.5 |
|
|
$ |
2,684.9 |
|
|
$ |
2,571.8 |
|
|
23
International Change in Net
Sales by Geographic Region
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
|
vs. 2010 |
|
|
vs. 2009 |
|
|
Europe |
|
|
5 |
% |
|
|
1 |
% |
Canada |
|
|
8 |
|
|
|
10 |
|
Asia/Pacific |
|
|
14 |
|
|
|
13 |
|
Latin America |
|
|
(5 |
) |
|
|
(11 |
) |
|
Total |
|
|
7 |
% |
|
|
4 |
% |
|
In fiscal 2011, net sales in Europe grew 5 percent driven by growth in Häagen Dazs and Nature
Valley in the United Kingdom, and Old El Paso in France and Switzerland, partially offset by
unfavorable foreign exchange. Net sales in Canada increased 8 percent due to favorable foreign
exchange and growth in ready to eat cereals. In the Asia/Pacific region, net sales grew 14 percent
driven by growth of Häagen-Dazs and Wanchai Ferry brands in China, and atta flour in India. Latin
America net sales decreased 5 percent driven by unfavorable foreign exchange primarily related to
the 2010 devaluation of the Venezuelan currency, partially offset by Diablitos growth in Venezuela
and La Salteña growth in Argentina.
In fiscal 2010, net sales in Europe increased by 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 13 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.
Segment operating profit for fiscal 2011 grew 52 percent to $291 million from $192 million in
fiscal 2010, primarily driven by volume growth and favorable foreign currency exchange. In fiscal
2010, we incurred a $14 million foreign exchange loss on the revaluation of non-bolivar fuerte
monetary balances in Venezuela.
Segment operating profit for fiscal 2010 declined 20 percent to $192 million, from $239 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 fuerte by resetting the official
exchange rate. The effect of the devaluation was a $14 million foreign exchange loss in fiscal
2010, primarily on the revaluation of non- bolivar fuerte 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 fuerte 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 2011 or 2010.
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 2011 |
|
Fiscal 2010 |
|
|
vs. 2010 |
|
vs. 2009 |
|
Contributions from volume growth (a) |
|
Flat |
|
-8 pts |
Net price realization and mix |
|
6 pts |
|
-5 pts |
Foreign currency exchange |
|
Flat |
|
Flat |
|
Net sales growth |
|
6 pts |
|
-13 pt |
|
|
|
|
(a) |
|
Measured in tons based on the stated weight of our product shipments. |
24
For fiscal 2011, net sales for our Bakeries and Foodservice segment increased 6 percent to $1,841
million. The increase in fiscal 2011 was driven by an increase in net price realization and mix of
6 percentage points, primarily from prices indexed to commodity markets. Contributions from volume
were flat, including a 2 percentage point decline from a divested product line.
For fiscal 2010, net sales for our Bakeries and Foodservice segment decreased 13 percent to $1,741
million. The decrease in fiscal 2010 was driven by 8 percentage points from volume declines,
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 5 percentage points,
primarily from prices indexed to commodity markets.
Net sales 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 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Foodservice Distributors |
|
$ |
557.3 |
|
|
$ |
543.3 |
|
|
$ |
558.1 |
|
Convenience Stores |
|
|
225.6 |
|
|
|
202.8 |
|
|
|
190.4 |
|
Bakeries and National Restaurant Accounts |
|
|
1,057.9 |
|
|
|
994.8 |
|
|
|
1,261.9 |
|
|
Total |
|
$ |
1,840.8 |
|
|
$ |
1,740.9 |
|
|
$ |
2,010.4 |
|
|
Bakeries and Foodservice Net Sales
Percentage Change by Customer Channel
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
|
vs. 2010 |
|
|
vs. 2009 |
|
|
Foodservice Distributors |
|
|
3 |
% |
|
|
(3 |
)% |
Convenience Stores |
|
|
11 |
|
|
|
7 |
|
Bakeries and National Restaurant Accounts |
|
|
6 |
|
|
|
(21 |
) |
|
Total |
|
|
6 |
% |
|
|
(13 |
)% |
|
In fiscal 2011, segment operating profit was $306 million, up from $263 million in fiscal 2010. The
increase was primarily driven by net price realization and mix and increased grain merchandising
earnings, partially offset by higher input costs.
Segment operating profit was $263 million in fiscal 2010, up from $178 million in fiscal 2009. The
increase was due to lower input costs, plant operating performance, and increased grain
merchandising earnings.
UNALLOCATED CORPORATE ITEMS
Unallocated corporate items include corporate overhead expenses, variances to planned domestic
employee benefits and incentives, 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 2011, unallocated corporate expense totaled $184 million compared to $203 million last
year. In fiscal 2011 we recorded a $95 million net decrease in expense related to mark-to-market
valuation of certain commodity positions and grain inventories, compared to a $7 million net
increase in expense last year. This was partially offset by a $69 million increase in corporate
pension expense in fiscal 2011. In fiscal 2010, we recorded a $13 million recovery against a
corporate investment.
Unallocated corporate expense totaled $203 million in fiscal 2010 compared to $342 million in
fiscal 2009. 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 in fiscal 2009. 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.
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.
25
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.
Our share of after-tax joint venture earnings decreased from $102 million in fiscal 2010 to $96
million in fiscal 2011 primarily due to higher advertising and media spending and increased service
cost allocations, all in CPW.
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.
The change in net sales for each joint venture is set forth in the following table:
Joint Venture Change in Net Sales
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
|
vs. 2010 |
|
|
vs. 2009 |
|
|
CPW |
|
|
3 |
% |
|
|
6 |
% |
HDJ |
|
|
4 |
|
|
|
(4 |
) |
|
Joint Ventures |
|
|
4 |
% |
|
|
4 |
% |
|
For fiscal 2011, CPW net sales grew by 3 percent due to a 2 percentage point increase in volume and
1 percentage point from favorable foreign exchange. Net price realization and mix was flat
compared to fiscal 2010. Net sales for HDJ increased 4 percent from fiscal 2010 primarily due to 9
percentage points of favorable foreign exchange, partially offset by a 5 percentage point decline
in net price realization and mix. Volume was flat compared to fiscal 2010.
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.
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 |
|
2011 |
|
2010 |
|
2009 |
|
Advances to joint ventures, net |
|
$ |
(1.8 |
) |
|
$ |
(128.1 |
) |
|
$ |
8.2 |
|
Dividends received |
|
|
72.7 |
|
|
|
88.0 |
|
|
|
68.5 |
|
|
IMPACT OF INFLATION
We have experienced significant input cost volatility since fiscal 2006. Our gross margin
performance in fiscal 2011 reflects the impact of input cost inflation, primarily on commodities
inputs. We expect the cost of commodities and energy to increase at a higher rate in fiscal 2012.
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, the Act did not have a material impact on our
fiscal 2011 or 2010 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 $5.5 billion in cash. A substantial portion of this operating
cash flow has been returned to stockholders through share
26
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 |
|
2011 |
|
2010 |
|
2009 |
|
Net earnings, including earnings attributable to
noncontrolling interests |
|
$ |
1,803.5 |
|
|
$ |
1,535.0 |
|
|
$ |
1,313.7 |
|
Depreciation and amortization |
|
|
472.6 |
|
|
|
457.1 |
|
|
|
453.6 |
|
After-tax earnings from joint ventures |
|
|
(96.4 |
) |
|
|
(101.7 |
) |
|
|
(91.9 |
) |
Stock-based compensation |
|
|
105.3 |
|
|
|
107.3 |
|
|
|
117.7 |
|
Deferred income taxes |
|
|
205.3 |
|
|
|
22.3 |
|
|
|
215.8 |
|
Tax benefit on exercised options |
|
|
(106.2 |
) |
|
|
(114.0 |
) |
|
|
(89.1 |
) |
Distributions of earnings from joint ventures |
|
|
72.7 |
|
|
|
88.0 |
|
|
|
68.5 |
|
Pension and other postretirement benefit plan contributions |
|
|
(220.8 |
) |
|
|
(17.2 |
) |
|
|
(220.3 |
) |
Pension and other postretirement benefit plan (income) expense |
|
|
73.6 |
|
|
|
(37.9 |
) |
|
|
(27.5 |
) |
Divestitures (gain), net |
|
|
(17.4 |
) |
|
|
|
|
|
|
(84.9 |
) |
Gain on insurance settlement |
|
|
|
|
|
|
|
|
|
|
(41.3 |
) |
Restructuring, impairment, and other exit costs (income) |
|
|
(1.3 |
) |
|
|
23.4 |
|
|
|
31.3 |
|
Changes in current assets and liabilities |
|
|
(720.9 |
) |
|
|
143.4 |
|
|
|
176.9 |
|
Other, net |
|
|
(43.2 |
) |
|
|
75.5 |
|
|
|
5.7 |
|
|
Net cash provided by operating activities |
|
$ |
1,526.8 |
|
|
$ |
2,181.2 |
|
|
$ |
1,828.2 |
|
|
In fiscal 2011, our operations generated $1.5 billion of cash compared to $2.2 billion in
fiscal 2010. The $654 million decrease primarily reflects an $864 million increased use of cash for
net current assets and liabilities and a $200 million voluntary contribution to our principal
domestic pension plans, partially offset by the $268 million increase in net earnings and a $183
million change in deferred income taxes primarily related to our pension plan contribution and a
change in tax legislation related to depreciation deductions.
The increased use of cash for net current assets and liabilities reflects lower other current
liabilities, primarily reflecting changes in the timing of marketing activities and related
accruals and a payment of $385 million in fiscal 2011 related to our IRS settlement as described in
Note 14 to the Consolidated Financial Statements in Item 8 of this report. In addition, inventories
used $223 million more cash in fiscal 2011 reflecting increased input costs.
We strive to grow core working capital at or below our growth in net sales. For fiscal 2011, core
working capital increased 16 percent, compared to net sales growth of 2 percent, reflecting cost
inflation and higher inventories. In fiscal 2010, core working capital increased 3 percent,
compared to net sales growth of 1 percent, and in fiscal 2009, core working capital declined 1
percent, compared to net sales growth of 7 percent.
In fiscal 2010, our operations generated $2.2 billion of cash compared to $1.8 billion in fiscal
2009, primarily reflecting the $221 million increase in net earnings, including earnings
attributable to noncontrolling interests.
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2011 |
|
2010 |
|
2009 |
|
Purchases of land, buildings, and equipment |
|
$ |
(648.8 |
) |
|
$ |
(649.9 |
) |
|
$ |
(562.6 |
) |
Acquisitions |
|
|
(123.3 |
) |
|
|
|
|
|
|
|
|
Investments in affiliates, net |
|
|
(1.8 |
) |
|
|
(130.7 |
) |
|
|
5.9 |
|
Proceeds from disposal of land, buildings, and equipment |
|
|
4.1 |
|
|
|
7.4 |
|
|
|
4.1 |
|
Proceeds from divestitures of product lines |
|
|
34.4 |
|
|
|
|
|
|
|
244.7 |
|
Proceeds from insurance settlement |
|
|
|
|
|
|
|
|
|
|
41.3 |
|
Other, net |
|
|
20.3 |
|
|
|
52.0 |
|
|
|
(22.3 |
) |
|
Net cash used by investing activities |
|
$ |
(715.1 |
) |
|
$ |
(721.2 |
) |
|
$ |
(288.9 |
) |
|
In fiscal 2011, cash used by investing activities decreased by $6 million from fiscal 2010.
The decreased use of cash reflects $25 million of proceeds from the divestiture of a foodservice
frozen baked goods product line in our International segment and $9 million of proceeds from the
sale of a pie shell product line in our Bakeries and Foodservice segment in fiscal 2011. In
addition, in fiscal
27
2011, we paid $85 million for the acquisition of the Mountain High yoghurt business for our U.S.
Retail segment and $38 million for the acquisition of the Pasta Master meals business in Australia
for our International segment. We also invested $131 million in affiliates in fiscal 2010, mainly
our CPW joint venture, to repay local borrowings.
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
$41 million of insurance proceeds received in fiscal 2009 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.
We expect capital expenditures to increase to approximately $670 million in fiscal 2012, excluding
any expenditures required to support Yoplait S.A.S. These expenditures support initiatives that are
expected to: increase manufacturing capacity for grain snacks; continue HMM initiatives throughout
the supply chain; expand International production capacity for Bugles, Nature Valley bars and
Häagen-Dazs products; and integrate fiscal 2011 acquisitions.
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2011 |
|
2010 |
|
2009 |
|
Change in notes payable |
|
$ |
(742.6 |
) |
|
$ |
235.8 |
|
|
$ |
(1,390.5 |
) |
Issuance of long-term debt |
|
|
1,200.0 |
|
|
|
|
|
|
|
1,850.0 |
|
Payment of long-term debt |
|
|
(7.4 |
) |
|
|
(906.9 |
) |
|
|
(370.3 |
) |
Proceeds from common stock issued on exercised options |
|
|
410.4 |
|
|
|
388.8 |
|
|
|
305.2 |
|
Tax benefit on exercised options |
|
|
106.2 |
|
|
|
114.0 |
|
|
|
89.1 |
|
Purchases of common stock for treasury |
|
|
(1,163.5 |
) |
|
|
(691.8 |
) |
|
|
(1,296.4 |
) |
Dividends paid |
|
|
(729.4 |
) |
|
|
(643.7 |
) |
|
|
(579.5 |
) |
Other, net |
|
|
(10.3 |
) |
|
|
|
|
|
|
(12.1 |
) |
|
Net cash used by financing activities |
|
$ |
(936.6 |
) |
|
$ |
(1,503.8 |
) |
|
$ |
(1,404.5 |
) |
|
Net cash used by financing activities decreased by $567 million in fiscal 2011.
In May 2011, we issued $300 million aggregate principal amount of 1.55 percent fixed-rate notes and
$400 million aggregate principal amount of floating-rate notes, both due May 16, 2014. The
proceeds of these notes were used to repay a portion of our outstanding commercial paper. The
floating-rate notes bear interest equal to three-month LIBOR plus 35 basis points, subject to
quarterly reset. Interest on the floating-rate notes is payable quarterly in arrears. Interest on
the fixed-rate notes is payable semi-annually in arrears. The fixed-rate 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, we issued $500 million aggregate principal amount of 5.4 percent notes due 2040. 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 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. We issued commercial paper to fund the repurchase.
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.
During fiscal 2011, we repurchased 32 million shares of our common stock for an aggregate purchase
price of $1,164 million. 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. On June 28, 2010, our
Board of Directors authorized the repurchase of up to 100 million shares of our common stock.
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.
28
Dividends paid in fiscal 2011 totaled $729 million, or $1.12 per share, a 17 percent per share
increase from fiscal 2010. Dividends paid in fiscal 2010 totaled $644 million, or $0.96 per share,
a 12 percent per share increase from fiscal 2009 dividends of $0.86 per share. On June 28, 2011,
our Board of Directors approved a dividend increase to an annual rate of $1.22 per share, a 9
percent increase from the rate paid in fiscal 2011.
CAPITAL RESOURCES
Total capital consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
May 30, |
In Millions |
|
2011 |
|
2010 |
|
Notes payable |
|
$ |
311.3 |
|
|
$ |
1,050.1 |
|
Current portion of long-term debt |
|
|
1,031.3 |
|
|
|
107.3 |
|
Long-term debt |
|
|
5,542.5 |
|
|
|
5,268.5 |
|
|
Total debt |
|
|
6,885.1 |
|
|
|
6,425.9 |
|
Noncontrolling interests |
|
|
246.7 |
|
|
|
245.1 |
|
Stockholders equity |
|
|
6,365.5 |
|
|
|
5,402.9 |
|
|
Total capital |
|
$ |
13,497.3 |
|
|
$ |
12,073.9 |
|
|
The increase in total capital from fiscal 2010 to fiscal 2011 was primarily due to net earnings
attributable to General Mills of $1.8 billion and an increase in current and long-term debt,
partially offset by a decrease in notes payable.
The following table details the fee-paid committed and uncommitted credit lines we had available as
of May 29, 2011:
|
|
|
|
|
In Billions |
|
Amount |
|
|
Credit facility expiring: |
|
|
|
|
October 2012 |
|
$ |
1.8 |
|
October 2013 |
|
|
1.1 |
|
|
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 2013. We also have $312 million in
uncommitted credit lines that support our foreign operations. As of May 29, 2011, there were no
amounts outstanding on the fee-paid committed credit lines and $119 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 29, 2011, we were in compliance with all of these
covenants.
On July 1, 2011, we acquired a 51 percent controlling interest in Yoplait S.A.S. and a 50 percent
interest in Yoplait Marques S.A.S. for an aggregate purchase price of $1.2 billion. Yoplait S.A.S.
operates yogurt businesses in several countries, including France and the United Kingdom, and
oversees franchise relationships around the world. Yoplait Marques S.A.S. holds the worldwide
rights to Yoplait and related trademarks. We financed this transaction using cash available in our
foreign subsidiaries and commercial paper.
We have $1,031 million of long-term debt maturing in the next 12 months that is classified as
current, primarily $1,020 million of 6.0 percent notes which mature on February 15, 2012. 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 29, 2011, our total debt, including the impact of derivative instruments designated as
hedges, was 77 percent in fixed-rate and 23 percent in floating-rate instruments, compared to 75
percent in fixed-rate and 25 percent in floating-rate instruments on May 30, 2010. The change in
the fixed-rate and floating-rate percentages was driven by the issuance of $500 million aggregate
principal amount of fixed rate debt and a decrease in notes payable in fiscal 2011.
29
We have an effective shelf registration statement on file with the 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 decreased from 13.8 percent in fiscal 2010 to 13.7 percent in fiscal 2011
primarily reflecting higher 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 2011 was 7.03 compared to 6.42 in fiscal 2010.
The measure increased from fiscal 2010 as earnings before income taxes and after-tax earnings from
joint ventures increased by $224 million and fixed charges decreased by $9 million, driven mainly
by lower interest expense. Our operating cash flow to debt ratio decreased 11.7 percentage points
to 22.2 percent in fiscal 2011, driven by a decrease in cash flows from operations and an increase
in our year-end debt balance.
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 Standard & Poors, 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 29, 2011, we have issued guarantees and comfort letters of $591 million for the debt and
other obligations of consolidated subsidiaries, and guarantees and comfort letters of $341 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 $261 million as of May 29, 2011.
As of May 29, 2011, we had invested in six variable interest entities (VIEs). We determined whether
or not we were the primary beneficiary (PB) of each VIE using a qualitative assessment that
considered the VIEs purpose and design, the involvement of each of the interest holders, and the
risks and benefits of the VIE. We have an interest in a contract manufacturer at our former
facility in Geneva, Illinois. We are the PB and have consolidated this entity. This entity had
property and equipment with a carrying value of $14 million and long-term debt of $15 million as of
May 29, 2011. The liabilities recognized as a result of consolidating this entity do not represent
additional claims on our general assets. The remaining five VIEs, two of which we are not the PB,
are not material to our results of operations, financial condition, or liquidity as of and for the
year ended May 29, 2011. We have provided minimal financial or other support to VIEs during the
current period and there are no arrangements related to VIEs that would require us to provide
significant 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 2011 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. We made $200 million of voluntary contributions to
our principal domestic plans in fiscal 2011. We do not expect to be required to make any
contributions in fiscal 2012. Actual fiscal 2012 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.
30
The following table summarizes our future estimated cash payments under existing contractual
obligations, including payments due by period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 and |
|
In Millions |
|
Total |
|
|
2012 |
|
|
2013 - 14 |
|
|
2015 - 16 |
|
|
Thereafter |
|
|
Long-term debt (a) |
|
$ |
6,565.1 |
|
|
$ |
1,030.1 |
|
|
$ |
2,134.8 |
|
|
$ |
750.1 |
|
|
$ |
2,650.1 |
|
Accrued interest |
|
|
114.0 |
|
|
|
114.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases (b) |
|
|
261.4 |
|
|
|
74.4 |
|
|
|
88.9 |
|
|
|
48.7 |
|
|
|
49.4 |
|
Capital leases |
|
|
5.9 |
|
|
|
2.2 |
|
|
|
2.7 |
|
|
|
0.8 |
|
|
|
0.2 |
|
Purchase obligations (c) |
|
|
2,791.4 |
|
|
|
2,457.6 |
|
|
|
193.9 |
|
|
|
74.8 |
|
|
|
65.1 |
|
|
Total contractual
obligations |
|
|
9,737.8 |
|
|
|
3,678.3 |
|
|
|
2,420.3 |
|
|
|
874.4 |
|
|
|
2,764.8 |
|
Other long-term
obligations (d) |
|
|
1,731.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term obligations |
|
$ |
11,468.9 |
|
|
$ |
3,678.3 |
|
|
$ |
2,420.3 |
|
|
$ |
874.4 |
|
|
$ |
2,764.8 |
|
|
|
|
|
(a) |
|
Amounts represent the expected cash payments of our long-term debt and do not include $3
million for domestic capital leases or $6 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, foreign exchange and grain derivative contracts with a
payable position to the counterparty was $86 million as of May 29, 2011, based on fair market
values as of that date. Future changes in market values will impact the amount of cash
ultimately paid or received to settle those instruments in the future. Other long-term
obligations mainly consist of liabilities for accrued compensation and benefits, including the
underfunded status of certain of our defined benefit pension, other postretirement, and
postemployment plans, and miscellaneous liabilities. We expect to pay $18 million of benefits
from our unfunded postemployment benefit plans and $10 million of deferred compensation in
fiscal 2012. We are unable to reliably estimate the amount of these payments beyond fiscal
2012. As of May 29, 2011, our total liability for uncertain tax positions and the associated
accrued interest and penalties was $280 million. |
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
generally recognized as expense when the advertisement airs. The cost of payments to customers and
other consumer-related 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 $463 million as of May 29, 2011, and $555 million as of May
30, 2010. 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
31
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 carrying amount of 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 performed our fiscal 2011 assessment as of
November 29, 2010 and determined there was no impairment of goodwill for any of our reporting units
as their related fair values were substantially in excess of their carrying values.
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 2011 assessment of our brand
intangibles as of November 29, 2010. 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 indefinite-lived
intangible assets as their related fair values were substantially in excess of the carrying values.
As of May 29, 2011, we had $10.5 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.
In addition, we assess our investments in our joint ventures if we have reason to believe an
impairment may have occurred including, but not limited to, ongoing operating losses, projected
decreases in earnings, increases in the weighted average cost of capital or significant business
disruptions. The significant assumptions used to estimate fair value include revenue growth and
profitability, royalty rates, capital spending, depreciation and taxes, foreign currency exchange
rates and a discount rate. By their nature, these projections and assumptions are uncertain. If we
were to determine the current fair value of our investment was less than the carrying value of the
investment, then we would assess if the shortfall was of a temporary or permanent nature and write
down the investment to its fair value if we concluded the impairment is other than temporary.
After the earthquakes and tsunami in Japan in March 2011, we assessed the fair value of our
investment in HDJ and determined that it exceeded the carrying value by approximately 5 percent. As
of May 29, 2011, the carrying value of HDJ consisted of our investment of $61 million and goodwill
of $524 million. Sustained declines in business results or an increase in the weighted average cost
of capital may adversely affect the fair value of our investment in HDJ, and could result in a
future impairment to our investment.
Stock-based Compensation
The valuation of stock options is a significant accounting estimate that requires us to use
judgments and assumptions that are likely to have a material impact on our financial statements.
Annually, we make predictive assumptions regarding future stock price volatility, employee exercise
behavior, dividend yield, and the forfeiture rate.
We estimate our future stock price volatility using the historical volatility over the expected
term of the option, excluding time periods of volatility we believe a marketplace participant would
exclude in estimating our stock price volatility. We also have considered, but did not use, implied
volatility in our estimate, because trading activity in options on our stock, especially those with
tenors of greater than 6 months, is insufficient to provide a reliable measure of expected
volatility. If all other assumptions are held constant, a one percentage point increase in our
fiscal 2011 volatility assumption would increase the grant-date fair value of our fiscal 2011
option awards by 5 percent.
32
Our expected term represents the period of time that options granted are expected to be outstanding
based on historical data to estimate option exercises and employee terminations 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 16 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.
The estimated fair values of stock options granted and the assumptions used for the Black-Scholes
option-pricing model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Estimated fair values of stock options granted |
|
$ |
4.12 |
|
|
$ |
3.20 |
|
|
$ |
4.70 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
2.9 |
% |
|
|
3.7 |
% |
|
|
4.4 |
% |
Expected term |
|
8.5 years |
|
8.5 years |
|
8.5 years |
Expected volatility |
|
|
18.5 |
% |
|
|
18.9 |
% |
|
|
16.1 |
% |
Dividend yield |
|
|
3.0 |
% |
|
|
3.4 |
% |
|
|
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.
We are subject to federal income taxes in the United States as well as various state, local, and
foreign 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. The IRS has completed its
review of our federal income tax returns for fiscal years 2008 and prior and has proposed
adjustments related to the amount of research and development tax credits claimed. We have appealed
these proposed adjustments.
During fiscal 2011, we reached a settlement with the IRS concerning certain corporate income tax
adjustments for fiscal years 2002 to
33
2008. The adjustments primarily relate to the amount of
capital loss, depreciation, and amortization we reported as a result
of the sale of noncontrolling interests in our GMC subsidiary. As a result, we recorded a $108 million
reduction in our total liabilities for uncertain tax positions in fiscal 2011. We made payments
totaling $385 million in fiscal 2011 related to this settlement. In addition, we made a payment of
$18 million in fiscal 2009 related to adjustments made at the IRS exam level for audits of fiscal
years 2004 to 2006.
Also during fiscal 2011, the Superior Court of the State of California issued an adverse decision
concerning our state income tax apportionment calculations. As a result, we recorded a $12 million
increase in our total liabilities for uncertain tax positions. We believe our positions are
supported by substantial technical authority and have appealed this decision. We do not expect to
make a payment related to this matter until it is definitively resolved.
In fiscal 2009, the U.S. Court of Appeals for the Eighth Circuit issued an opinion reversing a
district court decision rendered in fiscal 2008. As a result, we recorded $53 million (including
interest) of income tax expense in fiscal 2009 related to the reversal of cumulative income tax
benefits from this uncertain tax matter recognized in fiscal years 1992 through 2008. All
outstanding liabilities associated with this matter were paid during fiscal 2011.
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 (CRA) has completed its review of our
income tax returns in Canada for fiscal years 2003 to 2005. The CRA has raised assessments for
these years that we are currently appealing. We believe our positions are supported by substantial
technical authority and are vigorously defending our positions. We do not anticipate that any
United States or Canadian tax adjustments will have a significant impact on our financial position
or results of operations.
As of May 29, 2011, our total liability for uncertain tax positions and the associated accrued
interest and penalties was $280 million. We do not expect to pay any amounts related to uncertain
tax positions or accrued interest in the next 12 months. We are not able to reasonably estimate the
timing of future cash flows beyond 12 months due to uncertainties in the timing of tax audit
outcomes.
Defined Benefit Pension, Other Postretirement and Postemployment Benefit Plans
Defined Benefit Pension Plans
We have defined benefit pension plans covering most United States, 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 2011. We do
not expect to be required to make any contributions in fiscal 2012. 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 United States 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 2011. 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. We have not fully
evaluated the effect of the Act, including possible modifications to provider plans, but it could
affect the future cost of our benefit plans.
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.
34
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 20.3 percent, 5.6 percent, 7.5 percent,
9.2 percent, and 10.0 percent for the 1, 5, 10, 15, and 20 year periods ended May 29, 2011.
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 9.53 percent for fiscal 2011, 9.55 percent for fiscal
2010, and 9.55 percent for fiscal 2009.
Lowering the expected long-term rate of return on assets by 50 basis points would increase our net
pension and postretirement expense by $24 million for fiscal 2012. 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 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.
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 29, 2011, and
fiscal 2012 expense |
|
|
5.45 |
% |
|
|
5.35 |
% |
|
|
4.77 |
% |
Obligations as of
May 30, 2010, and
fiscal 2011 expense |
|
|
5.85 |
% |
|
|
5.80 |
% |
|
|
5.12 |
% |
Fiscal 2010 expense |
|
|
7.49 |
% |
|
|
7.45 |
% |
|
|
7.06 |
% |
|
Lowering the discount rates by 50 basis points would increase our net defined benefit pension,
other postretirement, and postemployment benefit plan expense for fiscal 2012 by approximately
$36.9 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
35
remain consistent with this review, recent experiences, and short-term expectations. Our initial
health care cost trend rate assumption is 8.5 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 2012 |
|
$ |
6.2 |
|
|
$ |
(5.4 |
) |
Effect on the other postretirement accumulated
benefit obligation as of May 29, 2011 |
|
|
82.4 |
|
|
|
(73.6 |
) |
|
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 2011, we recorded net defined benefit pension, other postretirement, and postemployment
benefit plan expense of $95 million compared to $11 million of income in fiscal 2010 and $4 million
of income in fiscal 2009. As of May 29, 2011, we had cumulative unrecognized actuarial net losses
of $1.3 billion on our defined benefit pension plans and $180 million on our postretirement and
postemployment benefit plans, mainly as the result of declines in the values of plan assets. These
unrecognized actuarial net losses will result in increases in our future pension expense and
increases in postretirement expense since they currently exceed the corridors defined by GAAP.
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 in fiscal 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 May 2011, the Financial Accounting Standards Board (FASB) issued new accounting guidance for
fair value measurements providing common fair value measurement and disclosure requirements. This
guidance is effective for interim and annual periods beginning after December 15, 2011, which for
us is the fourth quarter of fiscal 2012. We do not expect this guidance to have a material impact
on our results of operations or financial position.
In June 2011, the FASB issued new accounting guidance for the presentation of other comprehensive
income (OCI). This guidance requires entities to present net income and OCI in either a single
continuous statement or in separate consecutive statements. The guidance does not change the
components of net income or OCI, when OCI should be reclassified to net income, or the earnings per
share calculation. The guidance is effective for fiscal years beginning after December 15, 2011,
which for us is the first quarter of fiscal 2013. This guidance will not impact our results of
operations or financial position.
36
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.
The reconciliation of diluted EPS excluding certain items affecting comparability to diluted EPS,
the relevant GAAP measure, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
Per Share Data |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Diluted earnings per share, as reported |
|
$ |
2.70 |
|
|
$ |
2.24 |
|
|
$ |
1.90 |
|
|
$ |
1.85 |
|
|
$ |
1.59 |
|
Mark-to-market effects (a) |
|
|
(0.09 |
) |
|
|
0.01 |
|
|
|
0.11 |
|
|
|
(0.05 |
) |
|
|
|
|
Divestitures gain, net (b) |
|
|
|
|
|
|
|
|
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
Gain from insurance settlement (c) |
|
|
|
|
|
|
|
|
|
|
(0.04 |
) |
|
|
|
|
|
|
|
|
Uncertain tax items (d) |
|
|
(0.13 |
) |
|
|
|
|
|
|
0.08 |
|
|
|
(0.04 |
) |
|
|
|
|
Tax charge - health care reform (e) |
|
|
|
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share, excluding
certain items affecting comparability |
|
$ |
2.48 |
|
|
$ |
2.30 |
|
|
$ |
1.99 |
|
|
$ |
1.76 |
|
|
$ |
1.59 |
|
|
|
|
|
(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 court decisions and audit settlements on uncertain tax matters. |
(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. |
37
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 |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Net earnings attributable to General
Mills |
|
$ |
1,798.3 |
|
|
$ |
1,530.5 |
|
|
$ |
1,304.4 |
|
|
$ |
1,294.7 |
|
|
$ |
1,143.9 |
|
|
|
|
|
Interest, net, after-tax |
|
|
243.5 |
|
|
|
261.1 |
|
|
|
240.8 |
|
|
|
263.8 |
|
|
|
242.9 |
|
|
|
|
|
|
Earnings before interest, after-tax |
|
|
2,041.8 |
|
|
|
1,791.6 |
|
|
|
1,545.2 |
|
|
|
1,558.5 |
|
|
|
1,386.8 |
|
|
|
|
|
Mark-to-market effects |
|
|
(60.0 |
) |
|
|
4.5 |
|
|
|
74.9 |
|
|
|
(35.9 |
) |
|
|
|
|
|
|
|
|
Divestitures gain, net |
|
|
|
|
|
|
|
|
|
|
(38.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Gain from insurance settlement |
|
|
|
|
|
|
|
|
|
|
(26.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax items |
|
|
(88.9 |
) |
|
|
|
|
|
|
52.6 |
|
|
|
(30.7 |
) |
|
|
|
|
|
|
|
|
Tax charge heath care reform |
|
|
|
|
|
|
35.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, after-tax for
return on capital calculation |
|
$ |
1,892.9 |
|
|
$ |
1,831.1 |
|
|
$ |
1,607.8 |
|
|
$ |
1,491.9 |
|
|
$ |
1,386.8 |
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
1,031.3 |
|
|
$ |
107.3 |
|
|
$ |
508.5 |
|
|
$ |
442.0 |
|
|
$ |
1,734.0 |
|
|
$ |
2,131.5 |
|
Notes payable |
|
|
311.3 |
|
|
|
1,050.1 |
|
|
|
812.2 |
|
|
|
2,208.8 |
|
|
|
1,254.4 |
|
|
|
1,503.2 |
|
Long-term debt |
|
|
5,542.5 |
|
|
|
5,268.5 |
|
|
|
5,754.8 |
|
|
|
4,348.7 |
|
|
|
3,217.7 |
|
|
|
2,414.7 |
|
|
Total debt |
|
|
6,885.1 |
|
|
|
6,425.9 |
|
|
|
7,075.5 |
|
|
|
6,999.5 |
|
|
|
6,206.1 |
|
|
|
6,049.4 |
|
Noncontrolling interests |
|
|
246.7 |
|
|
|
245.1 |
|
|
|
244.2 |
|
|
|
246.6 |
|
|
|
1,139.2 |
|
|
|
1,136.2 |
|
Stockholders equity |
|
|
6,365.5 |
|
|
|
5,402.9 |
|
|
|
5,172.3 |
|
|
|
6,212.2 |
|
|
|
5,318.7 |
|
|
|
5,772.3 |
|
|
Total capital |
|
|
13,497.3 |
|
|
|
12,073.9 |
|
|
|
12,492.0 |
|
|
|
13,458.3 |
|
|
|
12,664.0 |
|
|
|
12,957.9 |
|
Accumulated other comprehensive
(income) loss |
|
|
1,010.8 |
|
|
|
1,486.9 |
|
|
|
877.8 |
|
|
|
(173.1 |
) |
|
|
120.1 |
|
|
|
(125.4 |
) |
After-tax earnings adjustments (a) |
|
|
(310.5 |
) |
|
|
(161.6 |
) |
|
|
(201.1 |
) |
|
|
(263.7 |
) |
|
|
(197.1 |
) |
|
|
(197.1 |
) |
|
Adjusted total capital |
|
$ |
14,197.6 |
|
|
$ |
13,399.2 |
|
|
$ |
13,168.7 |
|
|
$ |
13,021.5 |
|
|
$ |
12,587.0 |
|
|
$ |
12,635.4 |
|
|
Adjusted average total capital |
|
$ |
13,798.4 |
|
|
$ |
13,283.9 |
|
|
$ |
13,095.1 |
|
|
$ |
12,804.3 |
|
|
$ |
12,611.2 |
|
|
|
|
|
|
|
|
|
|
Return on average total capital |
|
|
13.7 |
% |
|
|
13.8 |
% |
|
|
12.3 |
% |
|
|
11.7 |
% |
|
|
11.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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.
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
38
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;
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.
39
|
|
|
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 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 29, 2011, we had interest rate swaps with $1.3 billion of aggregate notional principal
amount outstanding, with a net notional amount of $838 million that converts floating-rate notes to
fixed rates.
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, Swiss franc, 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 29, 2011, 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 29, 2011, the net notional value of commodity derivatives was $348 million, of which $161
million related to agricultural inputs and $187 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 occasionally use equity swaps to manage this
risk, but no swaps were outstanding as of May 29, 2011.
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
40
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.
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 29, 2011, and May 30, 2010, and the average fair value impact
during the year ended May 29, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Impact |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
May 29, |
|
|
during |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
fiscal 2011 |
|
|
2010 |
|
|
Interest rate instruments |
|
$ |
26.5 |
|
|
$ |
27.1 |
|
|
$ |
27.7 |
|
Foreign currency instruments |
|
|
8.7 |
|
|
|
5.8 |
|
|
|
4.3 |
|
Commodity instruments |
|
|
3.9 |
|
|
|
4.9 |
|
|
|
4.8 |
|
|
|
|
|
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 2012, 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 8, 2011
41
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 29, 2011 and May 30, 2010, 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 29, 2011. 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 29, 2011, 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 29,
2011 and May 30, 2010, and the results of their operations and their cash flows for each of the
fiscal years in the three-year period ended May 29, 2011, 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 29, 2011, based on criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ KPMG LLP
Minneapolis, Minnesota
July 8, 2011
42
Consolidated Statements of Earnings
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
14,880.2 |
|
|
$ |
14,635.6 |
|
|
$ |
14,555.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
8,926.7 |
|
|
|
8,835.4 |
|
|
|
9,380.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
|
3,192.0 |
|
|
|
3,162.7 |
|
|
|
2,893.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestitures (gain), net |
|
|
(17.4 |
) |
|
|
|
|
|
|
(84.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring, impairment, and other exit costs |
|
|
4.4 |
|
|
|
31.4 |
|
|
|
41.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
2,774.5 |
|
|
|
2,606.1 |
|
|
|
2,325.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net |
|
|
346.3 |
|
|
|
401.6 |
|
|
|
382.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and after-tax earnings
from joint ventures |
|
|
2,428.2 |
|
|
|
2,204.5 |
|
|
|
1,942.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
721.1 |
|
|
|
771.2 |
|
|
|
720.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax earnings from joint ventures |
|
|
96.4 |
|
|
|
101.7 |
|
|
|
91.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to
noncontrolling interests |
|
|
1,803.5 |
|
|
|
1,535.0 |
|
|
|
1,313.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to noncontrolling interests |
|
|
5.2 |
|
|
|
4.5 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to General Mills |
|
$ |
1,798.3 |
|
|
$ |
1,530.5 |
|
|
$ |
1,304.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share - basic |
|
$ |
2.80 |
|
|
$ |
2.32 |
|
|
$ |
1.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share - diluted |
|
$ |
2.70 |
|
|
$ |
2.24 |
|
|
$ |
1.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
1.12 |
|
|
$ |
0.96 |
|
|
$ |
0.86 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
43
Consolidated Balance Sheets
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except Par Value)
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
|
|
2011 |
|
|
2010 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
619.6 |
|
|
$ |
673.2 |
|
Receivables |
|
|
1,162.3 |
|
|
|
1,041.6 |
|
Inventories |
|
|
1,609.3 |
|
|
|
1,344.0 |
|
Deferred income taxes |
|
|
27.3 |
|
|
|
42.7 |
|
Prepaid expenses and other current assets |
|
|
483.5 |
|
|
|
378.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,902.0 |
|
|
|
3,480.0 |
|
|
|
|
|
|
|
|
|
|
Land, buildings, and equipment |
|
|
3,345.9 |
|
|
|
3,127.7 |
|
Goodwill |
|
|
6,750.8 |
|
|
|
6,592.8 |
|
Other intangible assets |
|
|
3,813.3 |
|
|
|
3,715.0 |
|
Other assets |
|
|
862.5 |
|
|
|
763.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
18,674.5 |
|
|
$ |
17,678.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
995.1 |
|
|
$ |
849.5 |
|
Current portion of long-term debt |
|
|
1,031.3 |
|
|
|
107.3 |
|
Notes payable |
|
|
311.3 |
|
|
|
1,050.1 |
|
Other current liabilities |
|
|
1,321.5 |
|
|
|
1,762.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,659.2 |
|
|
|
3,769.1 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
5,542.5 |
|
|
|
5,268.5 |
|
Deferred income taxes |
|
|
1,127.4 |
|
|
|
874.6 |
|
Other liabilities |
|
|
1,733.2 |
|
|
|
2,118.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
12,062.3 |
|
|
|
12,030.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, 754.6 shares issued, $0.10 par value |
|
|
75.5 |
|
|
|
75.5 |
|
Additional paid-in capital |
|
|
1,319.8 |
|
|
|
1,307.1 |
|
Retained earnings |
|
|
9,191.3 |
|
|
|
8,122.4 |
|
Common stock in treasury, at cost, shares of
109.8 and 98.1 |
|
|
(3,210.3 |
) |
|
|
(2,615.2 |
) |
Accumulated other comprehensive loss |
|
|
(1,010.8 |
) |
|
|
(1,486.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
6,365.5 |
|
|
|
5,402.9 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
|
|
246.7 |
|
|
|
245.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
6,612.2 |
|
|
|
5,648.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
18,674.5 |
|
|
$ |
17,678.9 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
44
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 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 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings
attributable to noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,798.3 |
|
|
|
|
|
|
|
5.2 |
|
|
|
1,803.5 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476.1 |
|
|
|
0.7 |
|
|
|
476.8 |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,280.3 |
|
Cash dividends declared
($1.12 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(729.4 |
) |
|
|
|
|
|
|
|
|
|
|
(729.4 |
) |
Stock compensation plans
(includes
income tax benefits of $106.2) |
|
|
|
|
|
|
|
|
|
|
(22.2 |
) |
|
|
20.1 |
|
|
|
568.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
546.2 |
|
Shares purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31.8 |
) |
|
|
(1,163.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,163.5 |
) |
Unearned compensation related to
restricted stock unit awards |
|
|
|
|
|
|
|
|
|
|
(70.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70.4 |
) |
Distributions to noncontrolling
interest holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.3 |
) |
|
|
(4.3 |
) |
Earned compensation |
|
|
|
|
|
|
|
|
|
|
105.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105.3 |
|
|
Balance as of May 29, 2011 |
|
|
754.6 |
|
|
$ |
75.5 |
|
|
$ |
1,319.8 |
|
|
|
(109.8 |
) |
|
$ |
(3,210.3 |
) |
|
$ |
9,191.3 |
|
|
$ |
(1,010.8 |
) |
|
$ |
246.7 |
|
|
$ |
6,612.2 |
|
|
See accompanying notes to consolidated financial statements.
45
Consolidated Statements of Cash Flows
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Cash Flows - Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to noncontrolling interests |
|
$ |
1,803.5 |
|
|
$ |
1,535.0 |
|
|
$ |
1,313.7 |
|
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
472.6 |
|
|
|
457.1 |
|
|
|
453.6 |
|
After-tax earnings from joint ventures |
|
|
(96.4 |
) |
|
|
(101.7 |
) |
|
|
(91.9 |
) |
Stock-based compensation |
|
|
105.3 |
|
|
|
107.3 |
|
|
|
117.7 |
|
Deferred income taxes |
|
|
205.3 |
|
|
|
22.3 |
|
|
|
215.8 |
|
Tax benefit on exercised options |
|
|
(106.2 |
) |
|
|
(114.0 |
) |
|
|
(89.1 |
) |
Distributions of earnings from joint ventures |
|
|
72.7 |
|
|
|
88.0 |
|
|
|
68.5 |
|
Pension and other postretirement benefit plan contributions |
|
|
(220.8 |
) |
|
|
(17.2 |
) |
|
|
(220.3 |
) |
Pension and other postretirement benefit plan expense (income) |
|
|
73.6 |
|
|
|
(37.9 |
) |
|
|
(27.5 |
) |
Divestitures (gain), net |
|
|
(17.4 |
) |
|
|
|
|
|
|
(84.9 |
) |
Gain on insurance settlement |
|
|
|
|
|
|
|
|
|
|
(41.3 |
) |
Restructuring, impairment, and other exit costs (income) |
|
|
(1.3 |
) |
|
|
23.4 |
|
|
|
31.3 |
|
Changes in current assets and liabilities |
|
|
(720.9 |
) |
|
|
143.4 |
|
|
|
176.9 |
|
Other, net |
|
|
(43.2 |
) |
|
|
75.5 |
|
|
|
5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,526.8 |
|
|
|
2,181.2 |
|
|
|
1,828.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows - Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of land, buildings, and equipment |
|
|
(648.8 |
) |
|
|
(649.9 |
) |
|
|
(562.6 |
) |
Acquisitions |
|
|
(123.3 |
) |
|
|
|
|
|
|
|
|
Investments in affiliates, net |
|
|
(1.8 |
) |
|
|
(130.7 |
) |
|
|
5.9 |
|
Proceeds from disposal of land, buildings, and equipment |
|
|
4.1 |
|
|
|
7.4 |
|
|
|
4.1 |
|
Proceeds from divestiture of product lines |
|
|
34.4 |
|
|
|
|
|
|
|
244.7 |
|
Proceeds from insurance settlement |
|
|
|
|
|
|
|
|
|
|
41.3 |
|
Other, net |
|
|
20.3 |
|
|
|
52.0 |
|
|
|
(22.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(715.1 |
) |
|
|
(721.2 |
) |
|
|
(288.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows - Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Change in notes payable |
|
|
(742.6 |
) |
|
|
235.8 |
|
|
|
(1,390.5 |
) |
Issuance of long-term debt |
|
|
1,200.0 |
|
|
|
|
|
|
|
1,850.0 |
|
Payment of long-term debt |
|
|
(7.4 |
) |
|
|
(906.9 |
) |
|
|
(370.3 |
) |
Proceeds from common stock issued on exercised options |
|
|
410.4 |
|
|
|
388.8 |
|
|
|
305.2 |
|
Tax benefit on exercised options |
|
|
106.2 |
|
|
|
114.0 |
|
|
|
89.1 |
|
Purchases of common stock for treasury |
|
|
(1,163.5 |
) |
|
|
(691.8 |
) |
|
|
(1,296.4 |
) |
Dividends paid |
|
|
(729.4 |
) |
|
|
(643.7 |
) |
|
|
(579.5 |
) |
Other, net |
|
|
(10.3 |
) |
|
|
|
|
|
|
(12.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(936.6 |
) |
|
|
(1,503.8 |
) |
|
|
(1,404.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
71.3 |
|
|
|
(32.8 |
) |
|
|
(46.0 |
) |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(53.6 |
) |
|
|
(76.6 |
) |
|
|
88.8 |
|
Cash and cash equivalents - beginning of year |
|
|
673.2 |
|
|
|
749.8 |
|
|
|
661.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of year |
|
$ |
619.6 |
|
|
$ |
673.2 |
|
|
$ |
749.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Changes in Current Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
$ |
(69.8 |
) |
|
$ |
(121.1 |
) |
|
$ |
81.8 |
|
Inventories |
|
|
(240.0 |
) |
|
|
(16.7 |
) |
|
|
(28.1 |
) |
Prepaid expenses and other current assets |
|
|
(96.0 |
) |
|
|
53.5 |
|
|
|
30.2 |
|
Accounts payable |
|
|
109.0 |
|
|
|
69.6 |
|
|
|
(116.4 |
) |
Other current liabilities |
|
|
(424.1 |
) |
|
|
158.1 |
|
|
|
209.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in current assets and liabilities |
|
$ |
(720.9 |
) |
|
$ |
143.4 |
|
|
$ |
176.9 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
46
Notes to Consolidated Financial Statements
GENERAL MILLS, INC. AND SUBSIDIARIES
NOTE 1. BASIS OF PRESENTATION AND RECLASSIFICATIONS
Income Statement Classifications
At the beginning of fiscal 2011, we revised the classification of certain revenues and expenses to
better align our income statement line items with how we manage our business. We have revised the
classification of amounts previously reported in our Consolidated Statements of Earnings to conform
to our fiscal 2011 presentation. These revised classifications had no effect on previously
reported net earnings attributable to General Mills or earnings per share. These changes include:
Revising the classification of certain customer logistics allowances as a reduction of net
sales (previously recorded as cost of sales). The impact of this change was a decrease in net sales
of $160.9 million in fiscal 2010 and $157.5 million in fiscal 2009 and a corresponding decrease to
cost of sales in each of the years.
Revising the classification of certain promotion-related costs, customer allowances, and
supply chain costs as cost of sales or selling, general, and administrative (SG&A) expenses
(previously recorded as a reduction of net sales or SG&A expenses). The impact of these changes was
an increase to net sales of $22.0 million in fiscal 2009; an increase to cost of sales of $73.4
million in fiscal 2010 and $80.6 million in fiscal 2009; and a decrease to SG&A expenses of $73.4
million in fiscal 2010 and $58.6 million in fiscal 2009.
Shifting allocation of certain SG&A expenses, primarily stock-based compensation, between
segment operating profit and unallocated corporate items. The impact of this change was a decrease
to segment operating profit of $20.8 million in fiscal 2010 and $18.9 million in fiscal 2009 and a
corresponding decrease in unallocated corporate items.
Shifting sales responsibility for a customer from our Bakeries and Foodservice segment to
our U.S. Retail segment. Net sales of $9.8 million in fiscal 2010 and $15.0 million in fiscal 2009
and segment operating profit of $4.1 million in fiscal 2010 and $6.4 million in fiscal 2009
previously recorded in our Bakeries and Foodservice segment have now been reported in the U.S.
Retail segment.
In addition, certain other reclassifications to our previously reported financial information have
been made to conform to the current period presentation.
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, except for our operations in Europe and China,
which have an April year-end. Fiscal 2011 and 2010 each consisted of 52 weeks, and fiscal 2009
consisted of 53 weeks.
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 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
47
retired, the accounts are relieved of its cost and related accumulated depreciation and the
resulting gains and losses, if any, are recognized in earnings. As of May 29, 2011, 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 carrying amount of 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 performed our fiscal 2011 assessment as of
November 29, 2010 and determined there was no impairment of goodwill for any of our reporting units
as their related fair values were substantially in excess of their carrying values.
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 2011 assessment of our brand
intangibles as of November 29, 2010. 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 indefinite-lived
intangible assets 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.
In addition, we assess our investments in our joint ventures if we have reason to believe an
impairment may have occurred including, but not limited to, ongoing operating losses, projected
decreases in earnings, increases in the weighted average cost of capital or significant business
disruptions. The significant assumptions used to estimate fair value include revenue growth and
profitability, royalty rates, capital spending, depreciation and taxes, foreign currency exchange
rates and a discount rate. By their nature, these projections and assumptions are uncertain. If we
were to determine the current fair value of our investment was less than the carrying value of the
investment, then we would assess if the shortfall was of a temporary or permanent nature and write
down the investment to its fair value if we concluded the impairment is other than temporary. After
the earthquakes and tsunami in Japan in March 2011, we assessed the fair value of our investment in
Häagen-Dazs Japan and determined that it exceeded the carrying value by approximately 5 percent.
Variable Interest Entities
As of May 29, 2011, we had invested in six variable interest entities (VIEs). We determined whether
or not we were the primary beneficiary (PB) of each VIE using a qualitative assessment that
considered the VIEs purpose and design, the involvement of each of the interest holders, and the
risks and benefits of the VIE. We have an interest in a contract manufacturer at our former
facility in Geneva, Illinois. We are the PB and have consolidated this entity. This entity had
property and equipment with a carrying value of $13.6 million and long-term debt of $15.0 million
as of May 29, 2011. The liabilities recognized as a result of consolidating this entity do not
represent additional claims on our general assets. The remaining five VIEs, two of which we are not
the PB, are not material to
48
our results of operations, financial condition, or liquidity as of and for the year ended May 29,
2011. We provided minimal financial or other support to VIEs during fiscal 2011 and there are no
arrangements related to VIEs that would require us to provide significant 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 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 (AOCI) 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 AOCI.
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 AOCI 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 AOCI are reclassified to earnings at that time. Any ineffectiveness is
recognized in earnings in the current period.
Stock-based Compensation
We generally measure 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. Our stock compensation expense is recorded in SG&A and cost of sales in the Consolidated
Statements of Earnings and allocated to each reportable segment 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.
49
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 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 AOCI.
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 2011, we adopted new accounting guidance on the consolidation model for 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 adoption of the
guidance did not have an impact on our results of operations or financial condition.
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.
NOTE 3. ACQUISITIONS AND DIVESTITURES
During the third quarter of fiscal 2011, we acquired the Mountain High yoghurt business for $84.8
million. We recorded the purchase price less the fair value of tangible and intangible net assets
acquired as goodwill of $44.6 million. During the fourth quarter of fiscal 2011, we acquired the
Pasta Master meals business in Australia for $38.5 million. We recorded the purchase price less the
fair value of tangible and intangible net assets acquired as goodwill of $26.9 million. The pro
forma effects of these acquisitions were not material.
During the third quarter of fiscal 2011, we sold a foodservice frozen baked goods product line in
our International segment for $24.9 million in cash and recorded a pre-tax gain of $14.3 million.
In addition, during the fourth quarter of fiscal 2011, we sold a pie shell product line in our
Bakeries and Foodservice segment for cash proceeds of $9.5 million and recorded a pre-tax gain of
$3.1 million.
During the fourth quarter of fiscal 2011, we entered into definitive agreements with PAI Partners
and Sodiaal International to purchase a 51 percent controlling interest in Yoplait S.A.S. and a 50
percent interest in Yoplait Marques S.A.S. for an aggregate purchase price
50
of $1.2 billion. Yoplait S.A.S. operates yogurt businesses in several countries, including France
and the United Kingdom, and oversees franchise relationships around the world. Yoplait Marques
S.A.S. holds the worldwide rights to Yoplait and related trademarks. We finalized this transaction
on July 1, 2011. The pro forma effects of this acquisition were not material.
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. 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.
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.
In fiscal 2011, we recorded restructuring, impairment, and other exit costs pursuant to approved
plans as follows:
|
|
|
|
|
Expense, in Millions |
|
|
|
|
|
Discontinuation of underperforming product line in our U.S. Retail
segment |
|
$ |
1.7 |
|
Charges associated with restructuring actions previously announced |
|
|
2.7 |
|
|
Total |
|
$ |
4.4 |
|
|
In fiscal 2011, we decided to exit an underperforming product line in our U.S. Retail segment. As a
result of this decision, we concluded that the future cash flows generated by this product line
were insufficient to recover the net book value of the associated long-lived assets. Accordingly,
we recorded a non-cash charge of $1.7 million related to the impairment of the associated
long-lived assets. No employees were affected by these actions. In addition, we recorded $2.7
million of charges associated with restructuring actions previously announced. In fiscal 2011, we
paid $5.9 million in cash related to restructuring actions taken in fiscal 2011 and previous years.
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 |
|
|
51
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 also decided to exit our breadcrumbs product line at
our Federalsburg, Maryland facility 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 $8.0 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 |
|
|
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 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 |
|
2011 charges, including foreign
currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilized in 2011 |
|
|
(0.9 |
) |
|
|
(2.6 |
) |
|
|
(0.1 |
) |
|
|
(3.6 |
) |
|
Reserve
balance as of May 29, 2011 |
|
$ |
1.7 |
|
|
$ |
5.5 |
|
|
$ |
|
|
|
$ |
7.2 |
|
|
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.
52
Joint venture balance sheet activity follows:
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Cumulative investments |
|
$ |
519.1 |
|
|
$ |
398.1 |
|
Goodwill and other intangibles |
|
|
597.1 |
|
|
|
512.6 |
|
Aggregate advances |
|
|
293.3 |
|
|
|
238.2 |
|
|
Joint venture earnings and cash flow activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Sales to joint ventures |
|
$ |
10.2 |
|
|
$ |
10.7 |
|
|
$ |
14.2 |
|
Net advances (repayments) |
|
|
1.8 |
|
|
|
128.1 |
|
|
|
(8.2 |
) |
Dividends received |
|
|
72.7 |
|
|
|
88.0 |
|
|
|
68.5 |
|
|
Summary combined financial information for the joint ventures on a 100 percent basis follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Net sales |
|
$ |
2,444.9 |
|
|
$ |
2,360.0 |
|
|
$ |
2,280.0 |
|
Gross margin |
|
|
1,066.3 |
|
|
|
1,053.2 |
|
|
|
873.5 |
|
Earnings before income taxes |
|
|
233.4 |
|
|
|
251.2 |
|
|
|
234.7 |
|
Earnings after income taxes |
|
|
164.2 |
|
|
|
202.3 |
|
|
|
175.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Current assets |
|
$ |
904.7 |
|
|
$ |
731.7 |
|
Noncurrent assets |
|
|
1,138.0 |
|
|
|
907.3 |
|
Current liabilities |
|
|
1,690.1 |
|
|
|
1,322.0 |
|
Noncurrent liabilities |
|
|
103.3 |
|
|
|
112.1 |
|
|
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
The components of goodwill and other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Goodwill |
|
$ |
6,750.8 |
|
|
$ |
6,592.8 |
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
Brands |
|
|
3,771.7 |
|
|
|
3,679.6 |
|
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
Patents, trademarks, and other finite-lived
intangibles |
|
|
69.2 |
|
|
|
54.4 |
|
Less accumulated amortization |
|
|
(27.6 |
) |
|
|
(19.0 |
) |
|
Intangible assets subject to amortization |
|
|
41.6 |
|
|
|
35.4 |
|
|
Other intangible assets |
|
|
3,813.3 |
|
|
|
3,715.0 |
|
|
Total |
|
$ |
10,564.1 |
|
|
$ |
10,307.8 |
|
|
53
The changes in the carrying amount of goodwill for fiscal 2009, 2010, and 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bakeries and |
|
|
Joint |
|
|
|
|
In Millions |
|
U.S. Retail |
|
|
International |
|
|
Foodservice |
|
|
Ventures |
|
|
Total |
|
|
Balance as of May 25, 2008 |
|
$ |
5,107.0 |
|
|
$ |
146.4 |
|
|
$ |
955.7 |
|
|
$ |
577.0 |
|
|
$ |
6,786.1 |
|
Acquisition |
|
|
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 |
|
Acquisitions |
|
|
44.6 |
|
|
|
26.9 |
|
|
|
|
|
|
|
|
|
|
|
71.5 |
|
Divestitures |
|
|
|
|
|
|
(0.5 |
) |
|
|
(1.9 |
) |
|
|
|
|
|
|
(2.4 |
) |
Other activity, primarily
foreign
currency translation |
|
|
|
|
|
|
14.2 |
|
|
|
|
|
|
|
74.7 |
|
|
|
88.9 |
|
|
Balance as of May 29, 2011 |
|
$ |
5,142.9 |
|
|
$ |
162.6 |
|
|
$ |
921.1 |
|
|
$ |
524.2 |
|
|
$ |
6,750.8 |
|
|
The changes in the carrying amount of other intangible assets for fiscal 2009, 2010, and 2011 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint |
|
|
|
|
In Millions |
|
U.S. Retail |
|
|
International |
|
|
Ventures |
|
|
Total |
|
|
Balance as of May 25, 2008 |
|
$ |
3,175.2 |
|
|
$ |
518.8 |
|
|
$ |
83.2 |
|
|
$ |
3,777.2 |
|
Acquisition |
|
|
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 |
|
Acquisitions |
|
|
39.3 |
|
|
|
6.0 |
|
|
|
|
|
|
|
45.3 |
|
Other activity, primarily
foreign currency translation |
|
|
(3.4 |
) |
|
|
46.6 |
|
|
|
9.8 |
|
|
|
53.0 |
|
|
Balance as of May 29, 2011 |
|
$ |
3,242.5 |
|
|
$ |
497.9 |
|
|
$ |
72.9 |
|
|
$ |
3,813.3 |
|
|
54
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 29, 2011, and May 30, 2010, a comparison of cost and market values of our
marketable debt and equity securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
Gross |
|
|
Gross |
|
|
|
Cost |
|
|
Value |
|
|
Gains |
|
|
Losses |
|
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
$ |
8.9 |
|
|
$ |
11.8 |
|
|
$ |
9.0 |
|
|
$ |
11.9 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
|
|
Equity securities |
|
|
2.0 |
|
|
|
6.1 |
|
|
|
6.0 |
|
|
|
15.5 |
|
|
|
4.0 |
|
|
|
9.4 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10.9 |
|
|
$ |
17.9 |
|
|
$ |
15.0 |
|
|
$ |
27.4 |
|
|
$ |
4.1 |
|
|
$ |
9.5 |
|
|
$ |
|
|
|
$ |
|
|
|
Earnings include $10.5 million of 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 our 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) |
|
$ |
2.7 |
|
|
$ |
2.7 |
|
From 1 to 3 years |
|
|
0.7 |
|
|
|
0.7 |
|
From 4 to 7 years |
|
|
5.2 |
|
|
|
5.3 |
|
Over 7 years |
|
|
0.3 |
|
|
|
0.3 |
|
Equity securities |
|
|
2.0 |
|
|
|
6.0 |
|
|
Total |
|
$ |
10.9 |
|
|
$ |
15.0 |
|
|
Marketable securities with a market value of $2.3 million as of May 29, 2011, were pledged as
collateral for certain derivative contracts.
The fair value and carrying amount of long-term debt, including the current portion, were $7,164.5
million and $6,573.8 million as of May 29, 2011. 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.
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.
55
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.
Unallocated corporate items for fiscal 2011 and fiscal 2010 included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Net gain (loss) on mark-to-market valuation of commodity
positions |
|
$ |
160.3 |
|
|
$ |
(54.7 |
) |
|
$ |
(249.6 |
) |
Net loss (gain) on commodity positions reclassified from
unallocated corporate items to segment operating profit |
|
|
(93.6 |
) |
|
|
55.7 |
|
|
|
134.8 |
|
Net mark-to-market revaluation of certain grain inventories |
|
|
28.5 |
|
|
|
(8.1 |
) |
|
|
(4.1 |
) |
|
Net mark-to-market valuation of certain commodity positions
recognized in unallocated corporate items |
|
$ |
95.2 |
|
|
$ |
(7.1 |
) |
|
$ |
(118.9 |
) |
|
As of May 29, 2011, the net notional value of commodity derivatives was $347.5 million, of which
$160.7 million related to agricultural inputs and $186.8 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 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 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 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 2011, 2010 and 2009.
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 2011, 2010 and 2009.
During the fourth quarter of fiscal 2011, we entered into swaps to convert $300.0 million of 1.55%
fixed-rate notes due May 16, 2014, to floating rates. We also entered into $500.0 million of
forward starting swaps with an average fixed rate of 3.9 percent in advance of a planned debt
financing.
During the fourth quarter of fiscal 2010, in advance of a planned debt financing, we entered into
$500.0 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 during the first quarter of fiscal 2011,
coincident with the issuance of our $500.0 million 30-year fixed-rate notes. As of May 29, 2011, a
$16.2 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 $700.0 million of interest rate swaps to
convert $700.0 million of 5.65 percent fixed-rate notes 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. The remaining $1.6 billion of
these pay-fixed swap contracts along with $1.6 billion of offsetting pay-floating swaps were cash
settled for
56
$22.3 million during the third quarter of fiscal 2011. As of May 29, 2011, a $0.5 million pre-tax
loss remained in AOCI, which will be reclassified to earnings over the remaining term of the
underlying debt.
As of May 29, 2011, a $12.7 million pre-tax loss on cash settled interest rate swaps for our $1.0
billion 10-year note issued January 24, 2007 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. Average floating rates are based on rates as of the end of the reporting
period.
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Pay-floating swaps notional amount |
|
$ |
838.0 |
|
|
$ |
2,155.6 |
|
Average receive rate |
|
|
1.8 |
% |
|
|
4.8 |
% |
Average pay rate |
|
|
0.2 |
% |
|
|
0.3 |
% |
Pay-fixed swaps notional amount |
|
$ |
|
|
|
$ |
1,600.0 |
|
Average receive rate |
|
|
|
% |
|
|
0.3 |
% |
Average pay rate |
|
|
|
% |
|
|
7.3 |
% |
Pay-fixed forward starting swaps -
notional amount |
|
$ |
500.0 |
|
|
$ |
|
|
|
The swap contracts mature at various dates from fiscal 2012 to 2014 as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Maturity Date |
|
In Millions |
|
Pay Floating |
|
|
Pay Fixed |
|
|
2012 |
|
$ |
3.4 |
|
|
$ |
500.0 |
|
2013 |
|
|
534.6 |
|
|
|
|
|
2014 |
|
|
300.0 |
|
|
|
|
|
|
Total |
|
$ |
838.0 |
|
|
$ |
500.0 |
|
|
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, Swiss franc, 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.
As of May 29, 2011, the notional value of foreign exchange derivatives was $2,436.5 million. The
amount of hedge ineffectiveness was less than $1 million in each of fiscal 2011, 2010 and 2009.
As discussed in Note 3, during the fourth quarter of fiscal 2011 we entered into definitive
agreements with PAI Partners and Sodiaal International to purchase interests in Yoplait entities
for $1.2 billion. To reduce the risk of the U.S. dollar cost of the euro-denominated acquisition,
we purchased call options covering 637 million at a cost of $12.7 million. As of May 29, 2011, we
recorded a $2.2 million unrealized gain on these derivatives.
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 29, 2011, we had deferred net foreign currency transaction
losses of $95.7 million in AOCI associated with hedging activity.
57
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. |
The fair values of our assets, liabilities, and derivative positions recorded at fair value as of
May 29, 2011 and May 30, 2010, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, 2011 |
|
|
May 29, 2011 |
|
|
|
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) (b) |
|
$ |
|
|
|
$ |
11.2 |
|
|
$ |
|
|
|
$ |
11.2 |
|
|
$ |
|
|
|
$ |
(21.3 |
) |
|
$ |
|
|
|
$ |
(21.3 |
) |
Foreign exchange contracts (c)
(d) |
|
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
(14.9 |
) |
|
|
|
|
|
|
(14.9 |
) |
|
Total |
|
|
|
|
|
|
21.3 |
|
|
|
|
|
|
|
21.3 |
|
|
|
|
|
|
|
(36.2 |
) |
|
|
|
|
|
|
(36.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as
hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (a) (b) |
|
|
|
|
|
|
2.2 |
|
|
|
|
|
|
|
2.2 |
|
|
|
|
|
|
|
(0.9 |
) |
|
|
|
|
|
|
(0.9 |
) |
Foreign exchange contracts (c)
(d) |
|
|
|
|
|
|
57.1 |
|
|
|
|
|
|
|
57.1 |
|
|
|
|
|
|
|
(19.9 |
) |
|
|
|
|
|
|
(19.9 |
) |
Commodity contracts (c) (e) |
|
|
14.6 |
|
|
|
16.3 |
|
|
|
|
|
|
|
30.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grain contracts (c) (e) |
|
|
|
|
|
|
61.1 |
|
|
|
|
|
|
|
61.1 |
|
|
|
|
|
|
|
(29.0 |
) |
|
|
|
|
|
|
(29.0 |
) |
|
Total |
|
|
14.6 |
|
|
|
136.7 |
|
|
|
|
|
|
|
151.3 |
|
|
|
|
|
|
|
(49.8 |
) |
|
|
|
|
|
|
(49.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets and liabilities
reported at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable investments (a) (f) |
|
|
5.9 |
|
|
|
9.1 |
|
|
|
|
|
|
|
15.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5.9 |
|
|
|
9.1 |
|
|
|
|
|
|
|
15.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, liabilities, and
derivative
positions recorded at fair value |
|
$ |
20.5 |
|
|
$ |
167.1 |
|
|
$ |
|
|
|
$ |
187.6 |
|
|
$ |
|
|
|
$ |
(86.0 |
) |
|
$ |
|
|
|
$ |
(86.0 |
) |
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, 2010 |
|
|
May 30, 2010 |
|
|
|
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) (b) |
|
$ |
|
|
|
|
5.8 |
|
|
|
|
|
|
$ |
5.8 |
|
|
$ |
|
|
|
|
(17.1 |
) |
|
|
|
|
|
$ |
(17.1 |
) |
Foreign exchange contracts (c)
(d) |
|
|
|
|
|
|
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) (b) |
|
|
|
|
|
|
124.3 |
|
|
|
|
|
|
|
124.3 |
|
|
|
|
|
|
|
(163.1 |
) |
|
|
|
|
|
|
(163.1 |
) |
Foreign exchange contracts (c)
(d) |
|
|
|
|
|
|
9.5 |
|
|
|
|
|
|
|
9.5 |
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
|
|
(1.0 |
) |
Commodity contracts (c) (e) |
|
|
|
|
|
|
7.4 |
|
|
|
|
|
|
|
7.4 |
|
|
|
(5.6 |
) |
|
|
|
|
|
|
|
|
|
|
(5.6 |
) |
Grain contracts (c) (e) |
|
|
|
|
|
|
11.9 |
|
|
|
|
|
|
|
11.9 |
|
|
|
|
|
|
|
(13.0 |
) |
|
|
|
|
|
|
(13.0 |
) |
|
Total |
|
|
|
|
|
|
153.1 |
|
|
|
|
|
|
|
153.1 |
|
|
|
(5.6 |
) |
|
|
(177.1 |
) |
|
|
|
|
|
|
(182.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets and liabilities
reported at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable investments (a) (f) |
|
|
15.5 |
|
|
|
11.9 |
|
|
|
|
|
|
|
27.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets (g) |
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
15.5 |
|
|
|
12.3 |
|
|
|
|
|
|
|
27.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
Based on LIBOR and swap rates. |
(c) |
|
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. |
(d) |
|
Based on observable market transactions of spot currency rates and forward currency prices. |
(e) |
|
Based on prices of futures exchanges and recently reported transactions in the marketplace. |
(f) |
|
Based on prices of common stock and bond matrix pricing. |
(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.
59
Information related to our cash flow hedges, fair value hedges, and other derivatives not
designated as hedging instruments for the fiscal years ended May 29, 2011, and May 30, 2010,
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate |
|
|
Foreign Exchange |
|
|
Equity |
|
|
Commodity |
|
|
|
|
|
|
Contracts |
|
|
Contracts |
|
|
Contracts |
|
|
Contracts |
|
|
Total |
|
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Derivatives in Cash Flow Hedging
Relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loss recognized in other
comprehensive income (OCI) (a) |
|
$ |
(20.9 |
) |
|
$ |
(11.7 |
) |
|
$ |
(18.9 |
) |
|
$ |
(13.3 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(39.8 |
) |
|
$ |
(25.0 |
) |
Amount of loss reclassified from
AOCI into earnings (a) (b) |
|
|
(13.1 |
) |
|
|
(18.0 |
) |
|
|
(16.7 |
) |
|
|
(26.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29.8 |
) |
|
|
(44.4 |
) |
Amount of gain (loss) recognized
in earnings (c) (d) |
|
|
(0.4 |
) |
|
|
(0.3 |
) |
|
|
0.3 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
(0.8 |
) |
Derivatives in Fair Value Hedging
Relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of net gain recognized
in earnings (e) |
|
|
0.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
0.2 |
|
Derivatives Not Designated as Hedging
Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) recognized in
earnings (e) |
|
|
1.0 |
|
|
|
0.2 |
|
|
|
23.7 |
|
|
|
13.3 |
|
|
|
|
|
|
|
0.2 |
|
|
|
160.3 |
|
|
|
(54.7 |
) |
|
|
185.0 |
|
|
|
(41.0 |
) |
|
|
|
|
(a) |
|
Effective portion. |
(b) |
|
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) |
|
Gain (loss) recognized in earnings is reported in SG&A expenses for foreign exchange
contracts. |
(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 and
foreign exchange contracts. |
AMOUNTS RECORDED IN ACCUMULATED OTHER COMPREHENSIVE LOSS
Unrealized losses from interest rate cash flow hedges recorded in AOCI as of May 29, 2011, totaled
$30.0 million after tax. These deferred losses are primarily related to interest rate swaps that we
entered into in contemplation of future borrowings and other financing requirements and that are
being reclassified into net interest over the lives of the hedged forecasted transactions.
Unrealized losses from foreign currency cash flow hedges recorded in AOCI as of May 29, 2011, were
$5.8 million after-tax. The net amount of pre-tax gains and losses in AOCI as of May 29, 2011, that
we expect to be reclassified into net earnings within the next 12 months is $11.7 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 29, 2011, was $6.3 million. We would be required to post this amount of collateral
to the counterparties if the contingent features were triggered.
CONCENTRATIONS OF CREDIT AND COUNTERPARTY CREDIT RISK
During fiscal 2011, 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
6 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 29, 2011, Wal-Mart accounted for 26 percent of our U.S.
Retail receivables, 5 percent of our International receivables, and 9 percent of our Bakeries and
Foodservice receivables. The five largest customers in our U.S. Retail segment accounted for 53
percent of its fiscal 2011 net sales, the five largest customers in our International segment
accounted for 24 percent of its fiscal 2011 net sales, and the five largest customers in our
Bakeries and Foodservice segment accounted for 45 percent of its fiscal 2011 net sales.
60
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 $63.1 million against which we do not hold
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 29, 2011 |
|
|
May 30, 2010 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Notes |
|
|
Interest |
|
|
Notes |
|
|
Interest |
|
In Millions |
|
Payable |
|
|
Rate |
|
|
Payable |
|
|
Rate |
|
|
U.S. commercial paper |
|
$ |
192.5 |
|
|
|
0.2 |
% |
|
$ |
973.0 |
|
|
|
0.3 |
% |
Financial institutions |
|
|
118.8 |
|
|
|
11.5 |
|
|
|
77.1 |
|
|
|
10.6 |
|
|
Total |
|
$ |
311.3 |
|
|
|
4.5 |
% |
|
$ |
1,050.1 |
|
|
|
1.1 |
% |
|
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 2013. We also have $311.8 million in
uncommitted credit lines that support our foreign operations. As of May 29, 2011, there were no
amounts outstanding on the fee-paid committed credit lines and $118.8 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. We were in compliance with all credit
facility covenants as of May 29, 2011.
Long-Term Debt
In May 2011, we issued $300.0 million aggregate principal amount of 1.55 percent fixed-rate notes
and $400.0 million aggregate principal amount of floating-rate notes, both due May 16, 2014. The
proceeds of these notes were used to repay a portion of our outstanding commercial paper. The
floating-rate notes bear interest equal to three-month LIBOR plus 35 basis points, subject to
quarterly reset. Interest on the floating-rate notes is payable quarterly in arrears. Interest on
the fixed-rate notes is payable semi-annually in arrears. The fixed-rate 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, we issued $500.0 million aggregate principal amount of 5.4 percent notes due 2040.
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 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. We issued commercial paper to fund the repurchase.
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.
Certain of our long-term debt agreements contain restrictive covenants. As of May 29, 2011, we were
in compliance with all of these covenants.
61
As of May 29, 2011, the $48.4 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
2012 is $4.3 million pre-tax.
A summary of our long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
5.65% notes due February 15, 2019 |
|
$ |
1,150.0 |
|
|
$ |
1,150.0 |
|
6% notes due February 15, 2012 |
|
|
1,019.5 |
|
|
|
1,019.5 |
|
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 |
|
|
|
520.8 |
|
5.4% notes due June 15, 2040 |
|
|
500.0 |
|
|
|
|
|
1.55% notes due May 16, 2014 |
|
|
300.0 |
|
|
|
|
|
Floating-rate notes due May 16, 2014 |
|
|
400.0 |
|
|
|
|
|
Medium-term notes, 0.1% to 6.5%, due fiscal 2012
or later |
|
|
204.4 |
|
|
|
204.4 |
|
Debt of consolidated contract manufacturer |
|
|
15.0 |
|
|
|
20.9 |
|
Other, including capital leases |
|
|
14.1 |
|
|
|
10.2 |
|
|
|
|
|
6,573.8 |
|
|
|
5,375.8 |
|
Less amount due within one year |
|
|
(1,031.3 |
) |
|
|
(107.3 |
) |
|
Total long-term debt |
|
$ |
5,542.5 |
|
|
$ |
5,268.5 |
|
|
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 $1,031.3 million in
fiscal 2012, $733.6 million in fiscal 2013, $1,402.6 million in fiscal 2014, $750.1 million in
fiscal 2015, and less than $1 million in fiscal 2016.
NOTE 9. NONCONTROLLING INTERESTS
Our principal noncontrolling interest relates to our subsidiary General Mills Cereals, LLC (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-party
investor. As of May 29, 2011, 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 seven foreign subsidiaries that have minority interests totaling $4.4 million
as of May 29, 2011.
Our noncontrolling interests contain restrictive covenants. As of May 29, 2011, 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.
During fiscal 2011, we repurchased 31.8 million shares of common stock for an aggregate purchase
price of $1,163.5 million. 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.
62
On June 28, 2010, our Board of Directors authorized the repurchase of up to 100 million shares of
our common stock. 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.
The following table provides details of total comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
In Millions |
|
Pretax |
|
|
Tax |
|
|
Net |
|
|
Net earnings attributable to General Mills |
|
|
|
|
|
|
|
|
|
$ |
1,798.3 |
|
Net earnings attributable to noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, including earnings attributable to
noncontrolling interests |
|
|
|
|
|
|
|
|
|
$ |
1,803.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
$ |
358.3 |
|
|
$ |
|
|
|
$ |
358.3 |
|
Net actuarial gain |
|
|
93.5 |
|
|
|
(32.4 |
) |
|
|
61.1 |
|
Other fair value changes: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
(5.8 |
) |
|
|
2.2 |
|
|
|
(3.6 |
) |
Hedge derivatives |
|
|
(39.8 |
) |
|
|
14.4 |
|
|
|
(25.4 |
) |
Reclassification to earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Hedge derivatives |
|
|
29.8 |
|
|
|
(11.3 |
) |
|
|
18.5 |
|
Amortization of losses and prior service costs |
|
|
108.7 |
|
|
|
(41.5 |
) |
|
|
67.2 |
|
|
Other comprehensive income (loss) in accumulated
other comprehensive loss |
|
|
544.7 |
|
|
|
(68.6 |
) |
|
|
476.1 |
|
Other comprehensive income attributable to
noncontrolling interests |
|
|
0.7 |
|
|
|
|
|
|
|
0.7 |
|
|
Other comprehensive income (loss) |
|
$ |
545.4 |
|
|
$ |
(68.6 |
) |
|
$ |
476.8 |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
2,280.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
(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 loss attributable to
noncontrolling interests |
|
|
0.2 |
|
|
|
|
|
|
|
0.2 |
|
|
Other comprehensive income (loss) |
|
$ |
(909.0 |
) |
|
$ |
300.1 |
|
|
$ |
(608.9 |
) |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
926.1 |
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
(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 income 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 |
|
|
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 2011, 2010, and 2009, 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 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Foreign currency translation adjustments |
|
$ |
553.2 |
|
|
$ |
194.9 |
|
Unrealized gain (loss) from: |
|
|
|
|
|
|
|
|
Securities |
|
|
2.0 |
|
|
|
5.6 |
|
Hedge derivatives |
|
|
(35.8 |
) |
|
|
(28.9 |
) |
Pension, other postretirement, and
postemployment benefits: |
|
|
|
|
|
|
|
|
Net actuarial loss |
|
|
(1,509.5 |
) |
|
|
(1,611.0 |
) |
Prior service costs |
|
|
(20.7 |
) |
|
|
(47.5 |
) |
|
Accumulated other comprehensive loss |
|
$ |
(1,010.8 |
) |
|
$ |
(1,486.9 |
) |
|
NOTE 11. STOCK PLANS
We use broad-based stock plans to help ensure that managements interests are aligned with those of
our stockholders. As of May 29, 2011, a total of 16,942,290 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 Plan) and the 2006 Compensation Plan for Non-Employee
Directors (2006 Director Plan). The 2009 Plan also provides 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 and the Executive
Incentive Plan (EIP), 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.
64
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 |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Estimated fair values of stock
options granted |
|
$ |
4.12 |
|
|
$ |
3.20 |
|
|
$ |
4.70 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
2.9 |
% |
|
|
3.7 |
% |
|
|
4.4 |
% |
Expected term |
|
8.5 years |
|
8.5 years |
|
8.5 years |
Expected volatility |
|
|
18.5 |
% |
|
|
18.9 |
% |
|
|
16.1 |
% |
Dividend yield |
|
|
3.0 |
% |
|
|
3.4 |
% |
|
|
2.7 |
% |
|
The valuation of stock options is a significant accounting estimate that requires us to use
judgments and assumptions that are likely to have a material impact on our financial statements.
Annually, we make predictive assumptions regarding future stock price volatility, employee exercise
behavior, dividend yield, and the forfeiture rate.
We estimate the fair value of each option on the grant date using a 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. 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 exercises and employee terminations 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.
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.
65
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 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 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
5,234.3 |
|
|
|
37.38 |
|
Exercised |
|
|
|
|
|
|
|
|
|
|
(18,665.4 |
) |
|
|
22.59 |
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
(126.2 |
) |
|
|
31.26 |
|
|
Balance as of May 29, 2011 |
|
|
39,221.7 |
|
|
$ |
23.78 |
|
|
|
67,547.3 |
|
|
$ |
26.82 |
|
|
Stock-based compensation expense related to stock option awards was $26.8 million in fiscal 2011,
$34.4 million in fiscal 2010, and $40.0 million in fiscal 2009.
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 |
|
2011 |
|
2010 |
|
2009 |
|
Net cash proceeds |
|
$ |
410.4 |
|
|
$ |
388.5 |
|
|
$ |
305.9 |
|
Intrinsic value of options exercised |
|
$ |
275.6 |
|
|
$ |
271.8 |
|
|
$ |
226.7 |
|
|
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. 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 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.
66
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
30, 2010 |
|
|
10,209.8 |
|
|
$ |
28.49 |
|
|
|
424.3 |
|
|
$ |
28.64 |
|
|
|
3,703.7 |
|
|
$ |
29.65 |
|
Granted |
|
|
2,406.7 |
|
|
|
35.47 |
|
|
|
127.7 |
|
|
|
37.40 |
|
|
|
1,217.2 |
|
|
|
37.40 |
|
Vested |
|
|
(3,161.0 |
) |
|
|
26.46 |
|
|
|
(78.1 |
) |
|
|
29.02 |
|
|
|
(245.2 |
) |
|
|
31.33 |
|
Forfeited or expired |
|
|
(285.6 |
) |
|
|
31.61 |
|
|
|
(36.7 |
) |
|
|
30.04 |
|
|
|
(160.6 |
) |
|
|
31.36 |
|
|
Non-vested as of May
29, 2011 |
|
|
9,169.9 |
|
|
$ |
30.92 |
|
|
|
437.2 |
|
|
$ |
31.01 |
|
|
|
4,515.1 |
|
|
$ |
31.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2011 |
|
2010 |
|
2009 |
|
Number of units granted (thousands) |
|
|
3,751.6 |
|
|
|
4,745.7 |
|
|
|
4,348.0 |
|
Weighted average price per unit |
|
$ |
36.16 |
|
|
$ |
28.03 |
|
|
$ |
31.70 |
|
|
The total grant-date fair value of restricted stock unit awards that vested during fiscal 2011 was
$93.6 million, and $26.1 million vested during fiscal 2010.
As of May 29, 2011, unrecognized compensation expense related to non-vested stock options and
restricted stock units was $170.7 million. This expense will be recognized over 19 months, on
average.
Stock-based compensation expense related to restricted stock units and cash-settled share-based
payment awards was $141.2 million for fiscal 2011, $131.0 million for fiscal 2010, and $101.4
million for fiscal 2009.
NOTE 12. EARNINGS PER SHARE
Basic and diluted earnings per share (EPS) were calculated using the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions, Except per Share Data |
|
2011 |
|
2010 |
|
2009 |
|
Net earnings attributable to General Mills |
|
$ |
1,798.3 |
|
|
$ |
1,530.5 |
|
|
$ |
1,304.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares basic EPS |
|
|
642.7 |
|
|
|
659.6 |
|
|
|
663.7 |
|
Incremental share effect from: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
16.6 |
|
|
|
17.7 |
|
|
|
17.9 |
|
Restricted stock, restricted stock units, and other |
|
|
5.5 |
|
|
|
6.0 |
|
|
|
5.5 |
|
|
Average number of common shares diluted EPS |
|
|
664.8 |
|
|
|
683.3 |
|
|
|
687.1 |
|
|
Earnings per share basic |
|
$ |
2.80 |
|
|
$ |
2.32 |
|
|
$ |
1.96 |
|
Earnings per share diluted |
|
$ |
2.70 |
|
|
$ |
2.24 |
|
|
$ |
1.90 |
|
|
|
|
|
(a) |
|
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 |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Anti-dilutive stock options and restricted stock
units |
|
|
4.8 |
|
|
|
6.3 |
|
|
|
14.2 |
|
|
67
NOTE 13. RETIREMENT BENEFITS AND POSTEMPLOYMENT BENEFITS
Defined Benefit Pension Plans
We have defined benefit pension plans covering most United States, 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 2011. We
do not expect to be required to make any contributions in fiscal 2012. 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 United States 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 2011 or fiscal 2010.
Health Care Cost Trend Rates
Assumed health care cost trends are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2011 |
|
|
2010 |
|
|
Health care cost trend rate for next year |
|
|
8.5 |
% |
|
|
9.0 |
% |
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 |
|
|
|
2019 |
|
|
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 8.5 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 2012 |
|
$ |
6.2 |
|
|
$ |
(5.4 |
) |
Effect on the other postretirement accumulated
benefit obligation as of May 29, 2011 |
|
|
82.4 |
|
|
|
(73.6 |
) |
|
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 in fiscal 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 our defined benefit pension and other
postretirement benefit plans.
68
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 |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Change in Plan Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at beginning of year |
|
$ |
3,529.8 |
|
|
$ |
3,157.8 |
|
|
$ |
284.3 |
|
|
$ |
235.6 |
|
|
|
|
|
|
|
|
|
Actual return on assets |
|
|
688.9 |
|
|
|
535.9 |
|
|
|
60.7 |
|
|
|
41.0 |
|
|
|
|
|
|
|
|
|
Employer contributions |
|
|
220.7 |
|
|
|
17.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Plan participant contributions |
|
|
4.1 |
|
|
|
3.5 |
|
|
|
11.8 |
|
|
|
11.3 |
|
|
|
|
|
|
|
|
|
Benefits payments |
|
|
(188.2 |
) |
|
|
(182.6 |
) |
|
|
(3.1 |
) |
|
|
(3.7 |
) |
|
|
|
|
|
|
|
|
Foreign currency |
|
|
8.7 |
|
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at end of year |
|
$ |
4,264.0 |
|
|
$ |
3,529.8 |
|
|
$ |
353.8 |
|
|
$ |
284.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Projected Benefit
Obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at
beginning of year |
|
$ |
4,030.0 |
|
|
$ |
3,167.3 |
|
|
$ |
1,060.6 |
|
|
$ |
852.0 |
|
|
$ |
130.3 |
|
|
$ |
112.5 |
|
Service cost |
|
|
101.4 |
|
|
|
70.9 |
|
|
|
18.7 |
|
|
|
12.9 |
|
|
|
8.0 |
|
|
|
7.2 |
|
Interest cost |
|
|
230.9 |
|
|
|
230.3 |
|
|
|
60.1 |
|
|
|
61.6 |
|
|
|
5.1 |
|
|
|
5.6 |
|
Plan amendment |
|
|
|
|
|
|
25.8 |
|
|
|
(35.3 |
) |
|
|
7.5 |
|
|
|
|
|
|
|
|
|
Curtailment/other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2 |
|
|
|
10.6 |
|
Plan participant contributions |
|
|
4.1 |
|
|
|
3.5 |
|
|
|
11.8 |
|
|
|
11.3 |
|
|
|
|
|
|
|
|
|
Medicare Part D reimbursements |
|
|
|
|
|
|
|
|
|
|
4.5 |
|
|
|
4.7 |
|
|
|
|
|
|
|
|
|
Actuarial loss (gain) |
|
|
271.2 |
|
|
|
716.4 |
|
|
|
2.0 |
|
|
|
168.1 |
|
|
|
(0.5 |
) |
|
|
11.8 |
|
Benefits payments |
|
|
(188.2 |
) |
|
|
(182.6 |
) |
|
|
(56.9 |
) |
|
|
(57.5 |
) |
|
|
(16.1 |
) |
|
|
(17.6 |
) |
Foreign currency |
|
|
9.0 |
|
|
|
(1.6 |
) |
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
|
|
0.2 |
|
|
Projected benefit obligation at
end of year |
|
$ |
4,458.4 |
|
|
$ |
4,030.0 |
|
|
$ |
1,065.8 |
|
|
$ |
1,060.6 |
|
|
$ |
131.3 |
|
|
$ |
130.3 |
|
|
Plan assets less than benefit
obligation as of fiscal year end |
|
$ |
(194.4 |
) |
|
$ |
(500.2 |
) |
|
$ |
(712.0 |
) |
|
$ |
(776.3 |
) |
|
$ |
(131.3 |
) |
|
$ |
(130.3 |
) |
|
The accumulated benefit obligation for all defined benefit pension plans was $3,991.6 million as of
May 29, 2011, and $3,620.3 million as of May 30, 2010.
Amounts recognized in AOCI as of May 29, 2011, and May 30, 2010, 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 |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Net actuarial loss |
|
$ |
(1,313.9 |
) |
|
$ |
(1,369.9 |
) |
|
$ |
(181.3 |
) |
|
$ |
(225.2 |
) |
|
$ |
(14.3 |
) |
|
$ |
(15.9 |
) |
|
$ |
(1,509.5 |
) |
|
$ |
(1,611.0 |
) |
Prior service
(costs) credits |
|
|
(35.8 |
) |
|
|
(41.3 |
) |
|
|
20.7 |
|
|
|
1.0 |
|
|
|
(5.6 |
) |
|
|
(7.2 |
) |
|
|
(20.7 |
) |
|
|
(47.5 |
) |
|
Amounts recorded in
accumulated other
comprehensive loss |
|
$ |
(1,349.7 |
) |
|
$ |
(1,411.2 |
) |
|
$ |
(160.6 |
) |
|
$ |
(224.2 |
) |
|
$ |
(19.9 |
) |
|
$ |
(23.1 |
) |
|
$ |
(1,530.2 |
) |
|
$ |
(1,658.5 |
) |
|
69
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 |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Projected benefit obligation |
|
$ |
335.1 |
|
|
$ |
299.6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Accumulated benefit
obligation |
|
|
280.6 |
|
|
|
252.5 |
|
|
|
1,065.8 |
|
|
|
1,060.6 |
|
|
|
131.3 |
|
|
|
130.3 |
|
Plan assets at fair value |
|
|
9.0 |
|
|
|
17.3 |
|
|
|
353.8 |
|
|
|
284.3 |
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit expense (income) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Other Postretirement |
|
|
Postemployment |
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
Benefit Plans |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
In Millions |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Service cost |
|
$ |
101.4 |
|
|
$ |
70.9 |
|
|
$ |
76.5 |
|
|
$ |
18.7 |
|
|
$ |
12.9 |
|
|
$ |
14.2 |
|
|
$ |
8.0 |
|
|
$ |
7.2 |
|
|
$ |
6.5 |
|
Interest cost |
|
|
230.9 |
|
|
|
230.3 |
|
|
|
215.4 |
|
|
|
60.1 |
|
|
|
61.6 |
|
|
|
61.2 |
|
|
|
5.1 |
|
|
|
5.7 |
|
|
|
4.9 |
|
Expected return on
plan assets |
|
|
(408.5 |
) |
|
|
(400.1 |
) |
|
|
(385.8 |
) |
|
|
(33.2 |
) |
|
|
(29.2 |
) |
|
|
(30.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of losses |
|
|
81.4 |
|
|
|
8.4 |
|
|
|
7.8 |
|
|
|
14.4 |
|
|
|
2.0 |
|
|
|
7.2 |
|
|
|
2.1 |
|
|
|
1.0 |
|
|
|
1.0 |
|
Amortization of prior
service
costs (credits) |
|
|
9.0 |
|
|
|
6.9 |
|
|
|
7.4 |
|
|
|
(0.6 |
) |
|
|
(1.6 |
) |
|
|
(1.4 |
) |
|
|
2.4 |
|
|
|
2.4 |
|
|
|
2.2 |
|
Other adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2 |
|
|
|
10.6 |
|
|
|
8.4 |
|
|
Net expense (income) |
|
$ |
14.2 |
|
|
$ |
(83.6 |
) |
|
$ |
(78.7 |
) |
|
$ |
59.4 |
|
|
$ |
45.7 |
|
|
$ |
51.2 |
|
|
$ |
21.8 |
|
|
$ |
26.9 |
|
|
$ |
23.0 |
|
|
We expect to recognize the following amounts in net periodic benefit expense (income) in fiscal
2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Defined Benefit |
|
|
Postretirement |
|
|
Postemployment |
|
In Millions |
|
Pension Plans |
|
|
Benefit Plans |
|
|
Benefit Plans |
|
|
Amortization of losses |
|
$ |
108.2 |
|
|
$ |
14.4 |
|
|
$ |
1.8 |
|
Amortization of prior
service costs
(credits) |
|
|
8.6 |
|
|
|
(3.4 |
) |
|
|
2.1 |
|
|
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 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Discount rate |
|
|
5.45 |
% |
|
|
5.85 |
% |
|
|
5.35 |
% |
|
|
5.80 |
% |
|
|
4.77 |
% |
|
|
5.12 |
% |
Rate of salary
increases |
|
|
4.92 |
|
|
|
4.93 |
|
|
|
|
|
|
|
|
|
|
|
4.92 |
|
|
|
4.93 |
|
|
70
Weighted-average assumptions used to determine fiscal year net periodic benefit expense (income)
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Other Postretirement |
|
|
Postemployment |
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
Benefit Plans |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Discount rate |
|
|
5.85 |
% |
|
|
7.49 |
% |
|
|
6.88 |
% |
|
|
5.80 |
% |
|
|
7.45 |
% |
|
|
6.90 |
% |
|
|
5.12 |
% |
|
|
7.06 |
% |
|
|
6.64 |
% |
Rate of salary increases |
|
|
4.93 |
|
|
|
4.92 |
|
|
|
4.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.93 |
|
|
|
4.93 |
|
|
|
4.93 |
|
Expected long-term rate
of
return on plan assets |
|
|
9.53 |
|
|
|
9.55 |
|
|
|
9.55 |
|
|
|
9.33 |
|
|
|
9.33 |
|
|
|
9.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rates
Our discount rate assumptions are determined annually as of the last day of our fiscal year for 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
We categorize plan assets with a three level fair value hierarchy as described in Note 7. The fair
values of our pension and postretirement benefit plans assets at May 29, 2011 and May 30, 2010, by
asset category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
In Millions |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Assets |
|
|
Fair value measurement of pension plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (a) |
|
$ |
1,052.5 |
|
|
$ |
900.2 |
|
|
$ |
568.5 |
|
|
$ |
2,521.2 |
|
Fixed income (b) |
|
|
794.7 |
|
|
|
174.4 |
|
|
|
0.2 |
|
|
|
969.3 |
|
Real asset investments (c) |
|
|
113.0 |
|
|
|
95.2 |
|
|
|
356.9 |
|
|
|
565.1 |
|
Other investments (d) |
|
|
|
|
|
|
52.2 |
|
|
|
0.3 |
|
|
|
52.5 |
|
Cash and accruals |
|
|
155.9 |
|
|
|
|
|
|
|
|
|
|
|
155.9 |
|
|
Total fair value measurement of pension plan assets |
|
$ |
2,116.1 |
|
|
$ |
1,222.0 |
|
|
$ |
925.9 |
|
|
$ |
4,264.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement of postretirement benefit
plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (a) |
|
$ |
13.5 |
|
|
$ |
131.0 |
|
|
$ |
26.3 |
|
|
$ |
170.8 |
|
Fixed income (b) |
|
|
1.8 |
|
|
|
55.9 |
|
|
|
0.2 |
|
|
|
57.9 |
|
Real asset investments (c) |
|
|
|
|
|
|
7.2 |
|
|
|
13.6 |
|
|
|
20.8 |
|
Other investments (d) |
|
|
|
|
|
|
83.9 |
|
|
|
|
|
|
|
83.9 |
|
Cash and accruals |
|
|
20.4 |
|
|
|
|
|
|
|
|
|
|
|
20.4 |
|
|
Fair value measurement of postretirement benefit
plan assets |
|
$ |
35.7 |
|
|
$ |
278.0 |
|
|
$ |
40.1 |
|
|
$ |
353.8 |
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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. |
72
The following table is a roll forward of the Level 3 investments of our pension and postretirement
benefit plan assets during the years ended May 29, 2011 and May 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
|
|
|
|
|
|
|
|
|
Purchases, Sales |
|
|
|
|
|
|
|
|
|
Balance as of |
|
|
Transfers |
|
|
Issuances, and |
|
|
Net |
|
|
Balance as of |
|
In Millions |
|
May 30, 2010 |
|
|
In/(Out) |
|
|
Settlements (Net) |
|
|
Gain |
|
|
May 29, 2011 |
|
|
Pension benefit plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
512.8 |
|
|
$ |
2.4 |
|
|
$ |
(48.1 |
) |
|
$ |
101.4 |
|
|
$ |
568.5 |
|
Fixed income |
|
|
3.9 |
|
|
|
(0.9 |
) |
|
|
(4.3 |
) |
|
|
1.5 |
|
|
|
0.2 |
|
Real asset investments |
|
|
298.7 |
|
|
|
|
|
|
|
16.0 |
|
|
|
42.2 |
|
|
|
356.9 |
|
Other investments |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
Fair value activity of
pension level 3 plan assets |
|
$ |
815.7 |
|
|
$ |
1.5 |
|
|
$ |
(36.4 |
) |
|
$ |
145.1 |
|
|
$ |
925.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefit plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
25.7 |
|
|
$ |
|
|
|
$ |
(3.7 |
) |
|
$ |
4.3 |
|
|
$ |
26.3 |
|
Fixed income |
|
|
1.7 |
|
|
|
|
|
|
|
(1.5 |
) |
|
|
|
|
|
|
0.2 |
|
Real asset investments |
|
|
14.6 |
|
|
|
|
|
|
|
(2.2 |
) |
|
|
1.2 |
|
|
|
13.6 |
|
|
Fair value activity of
postretirement
benefit level 3 plan assets: |
|
$ |
42.0 |
|
|
$ |
|
|
|
$ |
(7.4 |
) |
|
$ |
5.5 |
|
|
$ |
40.1 |
|
|
|
|
|
Fiscal 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 29, 2011, were $96.8
million for our pension plan assets, and $1.9 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.
73
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 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Asset category: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States equities |
|
|
30.1 |
% |
|
|
32.6 |
% |
|
|
37.6 |
% |
|
|
37.3 |
% |
International equities |
|
|
18.9 |
|
|
|
17.1 |
|
|
|
18.7 |
|
|
|
18.3 |
|
Private equities |
|
|
13.5 |
|
|
|
14.7 |
|
|
|
7.3 |
|
|
|
9.9 |
|
Fixed income |
|
|
23.9 |
|
|
|
22.4 |
|
|
|
30.1 |
|
|
|
28.1 |
|
Real assets |
|
|
13.6 |
|
|
|
13.2 |
|
|
|
6.3 |
|
|
|
6.4 |
|
|
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 2012. Actual fiscal 2012 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 2012 to 2021
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined |
|
|
Other |
|
|
|
|
|
|
|
|
|
Benefit |
|
|
Postretirement |
|
|
Medicare |
|
|
Postemployment |
|
|
|
Pension |
|
|
Benefit Plans |
|
|
Subsidy |
|
|
Benefit |
|
In Millions |
|
Plans |
|
|
Gross Payments |
|
|
Receipts |
|
|
Plans |
|
|
2012 |
|
$ |
204.8 |
|
|
$ |
58.6 |
|
|
$ |
5.0 |
|
|
$ |
18.4 |
|
2013 |
|
|
213.8 |
|
|
|
62.6 |
|
|
|
5.5 |
|
|
|
17.3 |
|
2014 |
|
|
223.3 |
|
|
|
64.6 |
|
|
|
6.0 |
|
|
|
16.3 |
|
2015 |
|
|
233.2 |
|
|
|
66.6 |
|
|
|
6.5 |
|
|
|
15.1 |
|
2016 |
|
|
243.8 |
|
|
|
39.6 |
|
|
|
7.1 |
|
|
|
14.4 |
|
2017-2021 |
|
|
1,402.3 |
|
|
|
387.7 |
|
|
|
38.9 |
|
|
|
66.6 |
|
|
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 $18.1 million as of May 29, 2011, and $16.8 million as of May 30, 2010. We also sponsor
defined contribution plans in many of our foreign locations. Our total recognized expense related
to defined contribution plans was $41.8 million in fiscal 2011, $64.5 million in fiscal 2010, and
$59.5 million in fiscal 2009.
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. The number of shares of our
common stock allocated to participants in the ESOP was 11.2 million as of May 29, 2011, and 11.9
million as of May 30, 2010.
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 and $50.6 million in fiscal
2009. The ESOPs expense was calculated by the shares allocated method.
74
The Company stock fund and the ESOP held $648.1 million and $610.3 million of Company common stock
as of May 29, 2011, and May 30, 2010.
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 |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Earnings before income taxes and
after-tax earnings from joint
ventures: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
2,144.8 |
|
|
$ |
2,060.4 |
|
|
$ |
1,717.5 |
|
Foreign |
|
|
283.4 |
|
|
|
144.1 |
|
|
|
224.7 |
|
|
Total earnings before income taxes and
after-tax earnings from joint
ventures |
|
$ |
2,428.2 |
|
|
$ |
2,204.5 |
|
|
$ |
1,942.2 |
|
|
Income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Currently payable: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
370.0 |
|
|
$ |
616.0 |
|
|
$ |
457.8 |
|
State and local |
|
|
76.9 |
|
|
|
87.4 |
|
|
|
37.3 |
|
Foreign |
|
|
68.9 |
|
|
|
45.5 |
|
|
|
9.5 |
|
|
Total current |
|
|
515.8 |
|
|
|
748.9 |
|
|
|
504.6 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
178.9 |
|
|
|
38.5 |
|
|
|
155.7 |
|
State and local |
|
|
30.8 |
|
|
|
(4.9 |
) |
|
|
36.3 |
|
Foreign |
|
|
(4.4 |
) |
|
|
(11.3 |
) |
|
|
23.8 |
|
|
Total deferred |
|
|
205.3 |
|
|
|
22.3 |
|
|
|
215.8 |
|
|
Total income taxes |
|
$ |
721.1 |
|
|
$ |
771.2 |
|
|
$ |
720.4 |
|
|
The following table reconciles the United States statutory income tax rate with our effective
income tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
United States statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and local income taxes, net of federal tax benefits |
|
|
2.7 |
|
|
|
2.5 |
|
|
|
2.9 |
|
Foreign rate differences |
|
|
(2.0 |
) |
|
|
(1.8 |
) |
|
|
(2.3 |
) |
Enactment date effect of health care reform |
|
|
|
|
|
|
1.3 |
|
|
|
|
|
Court decisions and audit settlements |
|
|
(3.7 |
) |
|
|
|
|
|
|
2.7 |
|
Domestic manufacturing deduction |
|
|
(1.6 |
) |
|
|
(1.8 |
) |
|
|
(1.1 |
) |
Other, net |
|
|
(0.7 |
) |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
Effective income tax rate |
|
|
29.7 |
% |
|
|
35.0 |
% |
|
|
37.1 |
% |
|
75
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are
as follows:
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Accrued liabilities |
|
$ |
129.5 |
|
|
$ |
148.5 |
|
Compensation and employee benefits |
|
|
582.9 |
|
|
|
584.9 |
|
Pension liability |
|
|
74.1 |
|
|
|
183.8 |
|
Tax credit carryforwards |
|
|
62.0 |
|
|
|
|
|
Stock, partnership, and miscellaneous investments |
|
|
500.6 |
|
|
|
474.9 |
|
Capital losses |
|
|
92.1 |
|
|
|
93.1 |
|
Net operating losses |
|
|
140.9 |
|
|
|
119.9 |
|
Other |
|
|
123.7 |
|
|
|
150.7 |
|
|
Gross deferred tax assets |
|
|
1,705.8 |
|
|
|
1,755.8 |
|
Valuation allowance |
|
|
404.5 |
|
|
|
392.0 |
|
|
Net deferred tax assets |
|
|
1,301.3 |
|
|
|
1,363.8 |
|
|
Brands |
|
|
1,289.1 |
|
|
|
1,279.5 |
|
Fixed assets |
|
|
394.6 |
|
|
|
307.6 |
|
Intangible assets |
|
|
122.3 |
|
|
|
107.4 |
|
Tax lease transactions |
|
|
63.0 |
|
|
|
68.7 |
|
Inventories |
|
|
53.0 |
|
|
|
55.6 |
|
Stock, partnership, and miscellaneous investments |
|
|
424.5 |
|
|
|
348.2 |
|
Unrealized hedges |
|
|
34.9 |
|
|
|
11.4 |
|
Other |
|
|
20.0 |
|
|
|
17.3 |
|
|
Gross deferred tax liabilities |
|
|
2,401.4 |
|
|
|
2,195.7 |
|
|
Net deferred tax liability |
|
$ |
1,100.1 |
|
|
$ |
831.9 |
|
|
In fiscal 2011, we changed the classification of certain gross deferred tax assets and liabilities
to better reflect current components and reclassified the components for fiscal 2010 to conform to
the current year presentation.
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 $404.5 million, $168.2 million relates to a deferred tax asset
for losses recorded as part of the Pillsbury acquisition. Of the remaining valuation allowance,
$92.1 million relates to capital loss carryforwards and $140.9 million relates to state and foreign
operating loss carryforwards. We have approximately $60.2 million of U.S. foreign tax credit
carryforwards for which no valuation allowance has been recorded. As of May 29, 2011, we believe it
is more likely than not that the remainder of our deferred tax assets are realizable.
The carryforward periods on our foreign loss carryforwards are as follows: $102.0 million do not
expire; $8.9 million expire in fiscal 2012 and 2013; and $18.3 million expire in fiscal 2014 and
beyond.
We have not recognized a deferred tax liability for unremitted earnings of $2.4 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 not practicable 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.
We are subject to federal income taxes in the United States as well as various state, local, and
foreign 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. The IRS has completed its
review of our federal income tax returns for fiscal years 2008 and
76
prior and has proposed adjustments related to the amount of research and development tax credits
claimed. We have appealed these proposed adjustments.
During fiscal 2011, we reached a settlement with the IRS concerning certain corporate income tax
adjustments for fiscal years 2002 to 2008. The adjustments primarily relate to the amount of
capital loss, depreciation, and amortization we reported as a result of the sale of noncontrolling
interests in our GMC subsidiary. As a result, we recorded a $108.1 million reduction in our total
liabilities for uncertain tax positions in fiscal 2011. We made payments totaling $385.3 million in
fiscal 2011 related to this settlement. In addition, we made a payment of $17.6 million in fiscal
2009 related to adjustments made in connection with IRS audits of fiscal years 2004 to 2006.
During 2011, the Superior Court of the State of California issued an adverse decision concerning
our state income tax apportionment calculations. As a result, we recorded an $11.5 million increase
in our total liabilities for uncertain tax positions. We believe our positions are supported by
substantial technical authority and have appealed this decision. We do not expect to make a
payment related to this matter until it is definitively resolved.
In fiscal 2009, the U.S. Court of Appeals for the Eighth Circuit issued an opinion reversing a
district court decision rendered in fiscal 2008. As a result, we recorded $52.6 million (including
interest) of income tax expense in fiscal 2009 related to the reversal of cumulative income tax
benefits from this uncertain tax matter recognized in fiscal years 1992 through 2008. All
outstanding liabilities associated with this matter were paid during fiscal 2011.
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 (CRA) has completed its review of our
income tax returns in Canada for fiscal years 2003 to 2005. The CRA has raised assessments for
these years that we are currently appealing. We believe our positions are supported by substantial
technical authority and are vigorously defending our positions. We do not anticipate that any
United States 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.
The following table sets forth changes in our total gross unrecognized tax benefit liabilities,
excluding accrued interest, for fiscal 2011. Approximately $152 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 |
|
2011 |
|
|
2010 |
|
|
Balance, beginning of year |
|
$ |
552.9 |
|
|
$ |
570.1 |
|
Tax positions related to current year: |
|
|
|
|
|
|
|
|
Additions |
|
|
25.0 |
|
|
|
19.7 |
|
Tax positions related to prior years: |
|
|
|
|
|
|
|
|
Additions |
|
|
75.6 |
|
|
|
7.1 |
|
Reductions |
|
|
(131.2 |
) |
|
|
(37.6 |
) |
Settlements |
|
|
(287.9 |
) |
|
|
(1.9 |
) |
Lapses in statutes of limitations |
|
|
(8.2 |
) |
|
|
(4.5 |
) |
|
Balance, end of year |
|
$ |
226.2 |
|
|
$ |
552.9 |
|
|
As of May 29, 2011, we do not expect to pay any unrecognized tax benefit liabilities within the
next 12 months. We are not able to reasonably estimate the timing of future cash flows beyond 12
months due to uncertainties in the timing of 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 benefit liabilities in income
tax expense. For fiscal 2011, we recognized a net benefit of $10.5 million associated with
tax-related net interest and penalties, and had $53.4 million of accrued interest and penalties as
of May 29, 2011. For fiscal 2010, we recognized a net $16.2 million of tax-related interest and
penalties, and had $174.8 million of accrued interest and penalties as of May 30, 2010.
77
NOTE 15. LEASES AND OTHER COMMITMENTS
An analysis of rent expense by type of property for operating leases follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Warehouse space |
|
$ |
63.4 |
|
|
$ |
55.7 |
|
|
$ |
51.4 |
|
Equipment |
|
|
32.1 |
|
|
|
30.6 |
|
|
|
39.1 |
|
Other |
|
|
56.9 |
|
|
|
51.6 |
|
|
|
49.5 |
|
|
Total rent expense |
|
$ |
152.4 |
|
|
$ |
137.9 |
|
|
$ |
140.0 |
|
|
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.
Noncancelable future lease commitments are:
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Capital |
|
In Millions |
|
Leases |
|
|
Leases |
|
|
2012 |
|
$ |
74.4 |
|
|
$ |
2.2 |
|
2013 |
|
|
52.5 |
|
|
|
1.8 |
|
2014 |
|
|
36.4 |
|
|
|
0.9 |
|
2015 |
|
|
26.1 |
|
|
|
0.5 |
|
2016 |
|
|
22.6 |
|
|
|
0.3 |
|
After 2016 |
|
|
49.4 |
|
|
|
0.2 |
|
|
Total noncancelable future lease commitments |
|
$ |
261.4 |
|
|
$ |
5.9 |
|
|
|
|
|
|
Less: interest |
|
|
|
|
|
|
(0.4 |
) |
|
Present value of obligations under capital leases |
|
|
|
|
|
$ |
5.5 |
|
|
These future lease commitments will be partially offset by estimated future sublease receipts of
approximately $13 million. Depreciation on capital leases is recorded as depreciation expense in
our results of operations.
As of May 29, 2011, we have issued guarantees and comfort letters of $591.2 million for the debt
and other obligations of consolidated subsidiaries, and guarantees and comfort letters of $340.6
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 $261.4 million as of May 29, 2011.
We are involved in various claims, including environmental matters, arising in the ordinary course
of business. In the opinion of management, the range of reasonably possible losses on 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, 68.3 percent of our fiscal 2011 consolidated net sales;
International, 19.3 percent of our fiscal 2011 consolidated net sales; and Bakeries and
Foodservice, 12.4 percent of our fiscal 2011 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 and fruit snacks. In markets outside North America, our product categories
include super-premium ice cream and frozen desserts, refrigerated yogurt, grain snacks, shelf
stable and frozen vegetables, refrigerated and frozen dough products, and dry dinners. Our
International segment also includes products manufactured in
78
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.
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. 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 corporate overhead expenses, variances to planned domestic employee benefits and
incentives, 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. 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, at the beginning of fiscal 2011 we revised certain SG&A expense
classifications between segment operating profit and unallocated corporate items and shifted
selling responsibility for a customer from our Bakeries and Foodservice segment to the U.S. Retail
segment. All prior period amounts have been restated to conform to the current period presentation.
Our operating segment results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Retail |
|
$ |
10,163.9 |
|
|
$ |
10,209.8 |
|
|
$ |
9,973.6 |
|
International |
|
|
2,875.5 |
|
|
|
2,684.9 |
|
|
|
2,571.8 |
|
Bakeries and Foodservice |
|
|
1,840.8 |
|
|
|
1,740.9 |
|
|
|
2,010.4 |
|
|
Total |
|
$ |
14,880.2 |
|
|
$ |
14,635.6 |
|
|
$ |
14,555.8 |
|
|
Operating profit: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Retail |
|
$ |
2,347.9 |
|
|
$ |
2,385.2 |
|
|
$ |
2,206.6 |
|
International |
|
|
291.4 |
|
|
|
192.1 |
|
|
|
239.2 |
|
Bakeries and Foodservice |
|
|
306.3 |
|
|
|
263.2 |
|
|
|
178.4 |
|
|
Total segment operating profit |
|
|
2,945.6 |
|
|
|
2,840.5 |
|
|
|
2,624.2 |
|
Unallocated corporate items |
|
|
184.1 |
|
|
|
203.0 |
|
|
|
342.5 |
|
Divestitures (gain), net |
|
|
(17.4 |
) |
|
|
|
|
|
|
(84.9 |
) |
Restructuring, impairment, and
other exit costs |
|
|
4.4 |
|
|
|
31.4 |
|
|
|
41.6 |
|
|
Operating profit |
|
$ |
2,774.5 |
|
|
$ |
2,606.1 |
|
|
$ |
2,325.0 |
|
|
79
The following table provides financial information by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
In Millions |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
11,987.8 |
|
|
$ |
11,934.4 |
|
|
$ |
11,942.1 |
|
Non-United States |
|
|
2,892.4 |
|
|
|
2,701.2 |
|
|
|
2,613.7 |
|
|
Total |
|
$ |
14,880.2 |
|
|
$ |
14,635.6 |
|
|
$ |
14,555.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
May 30, |
|
|
|
|
In Millions |
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
123.7 |
|
|
$ |
66.1 |
|
|
|
|
|
Non-United States |
|
|
495.9 |
|
|
|
607.1 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
619.6 |
|
|
$ |
673.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
May 30, |
|
|
|
|
In Millions |
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
Land, buildings, and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
2,752.1 |
|
|
$ |
2,619.7 |
|
|
|
|
|
Non-United States |
|
|
593.8 |
|
|
|
508.0 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,345.9 |
|
|
$ |
3,127.7 |
|
|
|
|
|
|
|
|
|
|
NOTE 17. SUPPLEMENTAL INFORMATION
The components of certain Consolidated Balance Sheet accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Receivables: |
|
|
|
|
|
|
|
|
From customers |
|
$ |
1,178.6 |
|
|
$ |
1,057.4 |
|
Less allowance for doubtful accounts |
|
|
(16.3 |
) |
|
|
(15.8 |
) |
|
Total |
|
$ |
1,162.3 |
|
|
$ |
1,041.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Inventories: |
|
|
|
|
|
|
|
|
Raw materials and packaging |
|
$ |
286.2 |
|
|
$ |
247.5 |
|
Finished goods |
|
|
1,273.6 |
|
|
|
1,131.4 |
|
Grain |
|
|
218.0 |
|
|
|
107.4 |
|
Excess of FIFO or weighted-average cost over
LIFO cost (a) |
|
|
(168.5 |
) |
|
|
(142.3 |
) |
|
Total |
|
$ |
1,609.3 |
|
|
$ |
1,344.0 |
|
|
(a) |
|
Inventories of $1,034.1 million as of May 29, 2011, and $958.3 million as of May 30, 2010,
were valued at LIFO. |
80
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Prepaid expenses and other current assets: |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
$ |
161.0 |
|
|
$ |
127.5 |
|
Accrued interest receivable, including interest
rate swaps |
|
|
29.0 |
|
|
|
64.9 |
|
Derivative receivables, primarily commodity-related |
|
|
109.1 |
|
|
|
48.8 |
|
Other receivables |
|
|
104.7 |
|
|
|
101.4 |
|
Grain contracts |
|
|
57.3 |
|
|
|
11.4 |
|
Miscellaneous |
|
|
22.4 |
|
|
|
24.5 |
|
|
Total |
|
$ |
483.5 |
|
|
$ |
378.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Land, buildings, and equipment: |
|
|
|
|
|
|
|
|
Land |
|
$ |
61.2 |
|
|
$ |
58.0 |
|
Buildings |
|
|
1,777.7 |
|
|
|
1,653.8 |
|
Buildings under capital lease |
|
|
25.0 |
|
|
|
19.6 |
|
Equipment |
|
|
4,719.7 |
|
|
|
4,405.6 |
|
Equipment under capital lease |
|
|
18.9 |
|
|
|
25.0 |
|
Capitalized software |
|
|
367.7 |
|
|
|
318.7 |
|
Construction in progress |
|
|
521.9 |
|
|
|
469.0 |
|
|
Total land, buildings, and equipment |
|
|
7,492.1 |
|
|
|
6,949.7 |
|
Less accumulated depreciation |
|
|
(4,146.2 |
) |
|
|
(3,822.0 |
) |
|
Total |
|
$ |
3,345.9 |
|
|
$ |
3,127.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
May 30, |
In Millions |
|
2011 |
|
2010 |
|
Other assets: |
|
|
|
|
|
|
|
|
Pension assets |
|
$ |
128.6 |
|
|
$ |
2.2 |
|
Investments in and advances to joint ventures |
|
|
519.1 |
|
|
|
398.1 |
|
Life insurance |
|
|
87.2 |
|
|
|
88.2 |
|
Derivative receivables |
|
|
13.3 |
|
|
|
130.1 |
|
Miscellaneous |
|
|
114.3 |
|
|
|
144.8 |
|
|
Total |
|
$ |
862.5 |
|
|
$ |
763.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, |
|
|
May 30, |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Other current liabilities: |
|
|
|
|
|
|
|
|
Accrued payroll |
|
$ |
303.3 |
|
|
$ |
331.4 |
|
Accrued interest |
|
|
114.0 |
|
|
|
136.5 |
|
Accrued trade and consumer promotions |
|
|
463.0 |
|
|
|
555.2 |
|
Accrued taxes |
|
|
80.4 |
|
|
|
440.2 |
|
Derivative payable |
|
|
34.8 |
|
|
|
18.1 |
|
Accrued customer advances |
|
|
36.4 |
|
|
|
25.5 |
|
Grain contracts |
|
|
28.7 |
|
|
|
12.7 |
|
Miscellaneous |
|
|
260.9 |
|
|
|
242.6 |
|
|
Total |
|
$ |
1,321.5 |
|
|
$ |
1,762.2 |
|
|