Number One General Mills Boulevard
Minneapolis, MN 55426-1347
GeneralMills.com
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Annual Report 2013
Healthy Growth
General
Mills
Our Fiscal 2013 Financial Highlights
Our Mission at General Mills Is Nourishing Lives
In millions, except per share and
return on capital data
Net Sales
Segment Operating Profita
Net Earnings Attributable to General Mills
Diluted Earnings per Share (EPS)
Adjusted Diluted EPS, Excluding Certain Items
Affecting Comparability b
52 weeks
ended
May 26, 2013
52 weeks
ended
May 27, 2012
$ 17,774
$ 16,658
3,198
1,855
2.79
3,012
1,567
2.35
2.69
2.56
Change
+ 7%
+ 6%
+ 18%
+ 19%
+ 5%
Return on Average Total Capitala
11.9%
12.7%
– 80 basis pts.
Average Diluted Shares Outstanding
666
667
Dividends per Share
$ 1.32
$ 1.22
– 0%
+ 8%
Net Sales
Dollars in millions
Segment Operating
Profita
Dollars in millions
Adjusted Diluted
Earnings per Shareb
Dollars
Dividends per Share
Dollars
4
7
7
,
7
1
8
5
6
,
6
1
6
5
5
,
4
1
6
3
6
,
4
1
0
8
8
,
4
1
8
4
5
,
3
1
8
9
1
,
3
2
1
0
,
3
6
4
9
,
2
0
4
8
,
2
4
2
6
,
2
4
9
3
,
2
9
6
.
2
6
5
.
2
8
4
.
2
0
3
.
2
9
9
.
1
6
7
.
1
2
3
.
1
2
2
.
1
2
1
.
1
6
9
.
0
6
8
.
0
8
7
.
0
08
09
10
11
12
13
08
09
10
11
12
13
08
09
10
11
12
13
08
09
10
11
12
13
a See page 89 for discussion of non-GAAP measures.
b Results exclude certain items affecting comparability. See page 89 for discussion of non-GAAP measures.
We believe that doing well for our
shareholders goes hand in hand
with doing well for our consumers,
our communities and our planet. Our
efforts include providing convenient,
nutritious food around the world,
building strong communities through
philanthropy and volunteerism, and
developing sustainable business
practices that reduce our environ-
mental footprint.
For a comprehensive overview
of our commitment to stand among
the most socially responsible food
companies in the world, see our Global
Responsibility Report available online
at GeneralMills.com/Responsibility.
Holiday Gift Boxes
General Mills Gift Boxes are a part of
many shareholders’ December holiday
traditions. To request an order form,
call us toll-free at (888) 496-7809 or
write, including your name, street
address, city, state, zip code and phone
number (including area code) to:
2013 General Mills Holiday Gift Box
Department 8907
P.O. Box 5013
Stacy, MN 55078-5013
Or you can place an order online at:
GMIHolidayGiftBox.com
Please contact us after
October 1, 2013.
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This Report Is Printed on Recycled Paper.
10%
©2013 General Mills
Annual Report 2013
1
Healthy
Growth
We have a broad portfolio of well-known brands that
provide great taste, nutrition, convenience and value for
consumers around the world. These leading brands have
driven healthy growth across our food categories over the
years, while generating strong returns for shareholders.
General Mills at a Glance
3%
13%
22%
15%
16%
U.S. Retail
Net Sales by Division
$10.6 Billion
22% Big G Cereals
17% Baking Products
16% Snacks
15% Frozen Foods
14% Meals
13% Yoplait USA
3% Small Planet Foods
14%
Bakeries and Foodservice
Net Sales by Brand Type
$2.0 Billion
54% Branded to Foodservice
15%
Operators
31% Branded to Consumers
15% Unbranded
31%
International
Net Sales by Region
$5.2 Billion
43% Europe*
23% Canada
17% Asia/Pacific
17% Latin America
* Includes Australia and
New Zealand
17%
17%
23%
Joint Ventures
Net Sales by Joint Venture
(not consolidated,
proportionate share)
16%
$1.3 Billion
84% Cereal Partners
Worldwide (CPW)
16% Häagen-Dazs Japan (HDJ)
43%
84%
17%
54%
2
Healthy Growth
To Our
Shareholders
General Mills had a good year in fiscal 2013, posting solid gains in sales
and earnings. We completed a two-year period of significant investment that
strengthened our business portfolio overall and meaningfully expanded our
base in international markets. And we finalized plans for fiscal 2014 that call for
faster earnings growth and increased cash returns to our shareholders.
certain other items affecting comparability of results
year to year. Adjusted diluted EPS, which excludes these
items, grew 5 percent to $2.69.
The operating environment for food manufacturers
slowly improved during fiscal 2013 as input cost inflation
moderated. For General Mills, inflation eased from the
10 percent rate we experienced in fiscal 2012 to a more
manageable 3 percent for the year just ended. In our
core market — the United States — consumer sentiment
improved and food prices, which moved broadly higher
in 2012, generally stabilized as the year concluded.
Net sales for our U.S. Retail operating segment grew
1 percent to $10.6 billion. The Snacks, Small Planet
Foods (organic and natural products), Baking Products
and Meals divisions led this sales performance. New
products generated 5 percent of U.S. Retail segment
sales, with particularly strong contributions from
Honey Nut Cheerios Medley Crunch cereal, Yoplait Greek
100 calorie yogurt and Nature Valley Protein bars. We
maintained our companywide focus on Holistic Margin
Management (HMM) and reflecting those efforts, U.S.
Retail segment operating profit rose faster than sales,
increasing 4 percent to $2.4 billion.
Ken Powell
Chairman and Chief Executive Officer
General Mills net sales for fiscal 2013 grew 7 percent to
$17.8 billion. New businesses — particularly Yoplait yogurt
operations in various international markets and Yoki
Alimentos in Brazil — contributed 6 percentage points of
this growth. And sales on our base business increased
2 percent before a one percentage point drag from foreign
exchange translation. Segment operating profit rose
6 percent to $3.2 billion, with each of our three operating
segments posting growth. And diluted earnings per
share (EPS) totaled $2.79, up 19 percent from a year ago.
These EPS results include restructuring costs, changes
in mark-to-market valuation of commodity positions, and
Annual Report 2013
3
Dividends per Share
Dollars
Current
Annualized
Rate
2
5
.
1
2
3
.
1
2
2
.
1
Average Diluted
Shares Outstanding
Shares in millions
7
6
6
6
6
6
5
6
6
12
13
14
11
12
13
Our Bakeries and Foodservice segment competes
primarily in U.S. channels for food eaten away from
home. In fiscal 2013, net sales declined slightly as
expected, but segment operating profit increased at a
double-digit rate to $315 million — a record level. This
profit growth reflects our ongoing strategy of focusing
on key branded product lines, and targeting the most
resilient customer channels, such as school cafeterias,
healthcare outlets and convenience stores. In fact, we
recently renamed this organization Convenience Stores
and Foodservice to align with its portfolio focus.
Net sales for our International segment grew 24 percent
in 2013 to exceed $5.2 billion. Segment operating profit
rose 14 percent to $490 million, including a strong
increase in advertising and media investment as well as
the negative effects of Venezuelan currency devaluation
that occurred during the year. Our double-digit sales
increase included mid-single-digit growth for our base
business and strong contributions from new businesses.
We posted good growth across all four of our geographic
regions in fiscal 2013. Net sales in Canada increased
22 percent, reflecting the addition of Yoplait. Our net sales
in Europe and the Asia/Pacific region each grew 11 percent.
And our net sales in Latin America more than doubled as
we added Yoki. On a constant-currency basis, our interna-
tional net sales grew 28 percent for the year.
We also hold 50-percent interests in two joint ventures
outside North America. Our $1.3 billion proportionate share
of net sales by Cereal Partners Worldwide (CPW) and
Häagen-Dazs Japan (HDJ) is not consolidated in General
Mills results. However, the joint ventures contributed
a combined $99 million in after-tax earnings in 2013, up
12 percent from prior-year results.
Net Sales Performance
2013 Net Sales % Change
International Segment*
Latin America*
Canada*
Europe*
Asia/Pacific*
U.S. Retail Segment
Small Planet Foods
Snacks
Baking Products
Meals
Big G Cereals
Frozen Foods
Yoplait USA
Bakeries and Foodservice Segment
+ 28
+ 139
+ 22
+ 15
+ 11
+ 1
+ 35
+ 9
+ 3
+ 2
– 2
– 3
– 5
– 1
* Does not include the impact of foreign currency translation. See page 89 of our
2013 Annual Report for a reconciliation to reported results.
We returned $1.9 billion in cash to shareholders in
2013 through dividends and share repurchase activity.
Our dividend rate grew 8 percent last year, and the new
quarterly rate effective with the Aug. 1, 2013, payment
represents a 15 percent increase for fiscal 2014. General
Mills and its predecessor firm have now paid dividends
4
Healthy Growth
A Selection of Our New Products
without interruption or reduction for 114 years. Stock
repurchase activity modestly reduced our average number
of diluted shares outstanding in 2013. In 2014, our plans
call for repurchasing shares sufficient to reduce the average
diluted share balance by 2 percent.
Our financial results in 2013 extend a track record of
consistent growth in recent years. Since 2008, General
Mills net sales have grown at a 6 percent compound
annual rate, segment operating profit has compounded
at 6 percent and adjusted diluted EPS have increased at a
9 percent annual rate. Net cash generated from operations
over the last five years totaled over $10.8 billion. This
strong cash flow supported significant share repurchases
and 11 percent compound annual growth in dividends per
share. This performance record aligns with our long-term
model for growth and shareholder returns, shown below.
General Mills Long-term Growth Model
Growth Factor
Net Sales
Segment Operating Profit
Compound Annual Growth Target
Low single-digit
Mid single-digit
Adjusted Diluted Earnings per Share
High single-digit
Dividend Yield
Total Return to Shareholders
2 to 3 percent
Double-digit
We’ve met our goal of delivering double-digit returns to
shareholders over this same time period. Total return
to General Mills shareholders through stock price perfor-
mance and dividends was a robust 29 percent in 2013.
Over the past five years, which was a challenging period
for the economy and for the capital markets overall,
the average annual return to General Mills shareholders
was 13 percent. This was more than double the overall
market’s average annual return over that period, as
represented by the S&P 500 Index. Looking ahead, we
remain committed to delivering superior returns for
General Mills shareholders.
We See Healthy Growth Prospects Ahead
We have strong confidence in our growth plans for 2014.
Our strategic actions in recent years have focused and
enhanced our business mix. We now compete in five global
Annual Report 2013
5
Returns to Shareholders
Percent growth, stock price appreciation plus
reinvested dividends
Fiscal 2013
9
2
8
2
Last 5 Fiscal
Years
(compound
annual return)
3
1
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0
5
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&
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S
I
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6
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5
P
&
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S
I
G
businesses — ready-to-eat cereals, yogurt, super-premium
ice cream, convenient meals and snacks — where category
retail sales are growing at attractive, mid- to high-single-digit
rates. Our brands hold leading positions in these categories
in the U.S. and international markets.
Product innovation is the fuel that creates category
growth. And we have strong plans for doing our part to
drive growth in our categories in 2014. Established
brands will make important contributions, and we have
a comprehensive new-product plan — several of these
new items are pictured to the left. We continue to focus
on product ideas that appeal to the fastest-growing
consumer groups. In the U.S., these are older adults, the
millennial generation and multicultural families. In devel-
oping and emerging international markets, the growing
middle class is driving demand for high-quality, nutritious
and convenient packaged foods.
Our 2014 plans include an estimated 3 percent inflation
rate for supply chain costs. Our response to this input cost
inflation will continue to be Holistic Margin Management
(HMM). Our companywide approach to protecting
margins includes focus on sales mix and pricing. However,
the primary focus of our HMM efforts is to identify non-
value-adding costs in our manufacturing process and other
activities across the company. We eliminate those costs
and use the savings to offset inflation and to reinvest in
advertising, research and development, and other activities
that drive sales growth. We have a record level of annual
HMM cost savings identified for fiscal 2014, with a project
list that spans established operations and new businesses.
We plan to reinvest some of our HMM cost savings in
consumer-directed marketing initiatives. We are big
believers in advertising, using both traditional and digital
media. Over the last five years, our media spending has
increased by more than 50 percent to $895 million in 2013.
We expect our media investment to increase in line with
sales in 2014.
Our plans for the new fiscal year also include strong,
collaborative initiatives with our retail customers worldwide.
We have top-ranked sales teams in U.S. Retail, in Foodservice
and in international markets. These teams and the capabili-
ties they bring are a competitive advantage for us.
In short, our 2014 plans call for sales and earnings growth
consistent with our long-term model. And we expect our
operations to generate strong cash flows again in 2014,
which will support our capital investment needs, along with
increased shareholder dividends and share repurchase
activity. We’re excited about the year.
In Closing, A Note of Thanks
Our performance — and our excellent future prospects —
are a reflection of the talent and hard work of General
Mills people around the world. It’s an honor and a privilege
for me to work with this team, which now includes
41,000 employees.
I’d also like to thank you for your investment in General
Mills. We appreciate your confidence in our business, and
we look forward to reporting on our continuing progress.
Kendall J. Powell
Chairman and Chief Executive Officer
August 1, 2013
6
Healthy Growth
Our Portfolio Is Poised
for Growth
We’re expanding our business around the world with a focus on five global
food categories. We’re also building our strong presence in the U.S.
in growing categories that have fueled our success over the past 85 years.
10%
Baking Aisle Products
10%
Dough
21%
Ready-to-eat
Cereal
6%
Vegetables
2%
Other
5%
Super-premium
Ice Cream
Fiscal 2013
Net Sales by
Platform
$19.1 Billion*
15%
Convenient
Meals
15%
Yogurt
16%
Snacks
* Non-GAAP measure. Includes $17.8 billion
consolidated net sales plus $1.1 billion
proportionate share of CPW (cereal) net
sales plus $0.2 billion proportionate share
of HDJ (ice cream) net sales.
Consumers the world over are
looking for foods that offer nutrition,
convenience and great taste. Our five
global categories — convenient meals,
yogurt, ready-to-eat cereal, snacks
and ice cream — deliver on these key
attributes. According to Euromonitor,
these categories range in size from
$12 billion to more than $90 billion
in annual retail sales worldwide. And
they’re each projected to grow at
mid- to high-single-digit rates over
the next five years, as the expanding
middle class in markets around the
world creates heightened demand
for packaged foods. Our net sales in
these categories exceeded $13 billion
in fiscal 2013, representing more than
70 percent of our total sales including
joint ventures.
In the U.S., we compete in several
additional categories. Our Baking
Products division is the largest
Our Five Global Categories Are
Large — and Growing
2012 Retail Sales
in Billions Growth†
+ 4%
$92
Category
Ready Meals
Yogurt
Ice Cream
$76
$72
$26
$12
+ 8%
+ 6%
+ 5%
+ 6%
Ready-to-eat Cereal
Snack Bars
† Projected five-year compound rate
Source: Euromonitor calendar 2012
Annual Report 2013
7
Our Sales in Global
Categories
Ready-to-eat Cereal
$4.0 Billion in Net Sales*
We market cereal through our wholly
owned businesses in North America
and elsewhere through Cereal Partners
Worldwide, our joint venture with Nestlé.
Refrigerated Yogurt
$2.9 Billion in Net Sales
We market Yoplait yogurt globally in
partnership with Sodiaal, a dairy cooperative
in France. Our other yogurt brands include
Liberté, Go-GURT and Mountain High.
Convenient Meals
$2.8 Billion in Net Sales
Old El Paso dinner kits, Wanchai Ferry
frozen foods, Progresso soups and
Helper dinner mixes give consumers
many options for quick and easy meals.
Wholesome Snack Bars
$1.5 Billion in Net Sales
Nature Valley, Cascadian Farm, Fiber One
and Lärabar offer nutritious options for
great-tasting, grab-and-go snacks.
Super-premium Ice Cream
$930 Million in Net Sales*
We market our Häagen-Dazs brand in
shops and retail outlets in more than
80 countries outside of North America,
including China, India and Brazil.
* Includes our proportionate share of joint venture sales.
branded baking products business
in the U.S. We’re the market leader in
the $1.9 billion dessert mix category
with the iconic Betty Crocker brand,
and Pillsbury is the leading brand in
the $2 billion refrigerated baked
goods category. And Green Giant
competes in the $3 billion frozen
vegetables category.
At General Mills, we’re well-
positioned to help drive growth in
our categories with our portfolio
of well-known brands. Household
penetration for our products is high in
developed markets — at least one of
our brands can be found in 97 percent
of U.S. homes — and our penetration
is growing in emerging markets around
the world. We bring strong levels of
advertising and product news to our
brands, which stimulates sales for
our categories and limits competition
from store brands. We see great
opportunities for future growth
as we develop new products and
enhance existing ones for consumers
everywhere. You can read about our
progress in our five global categories
on the following pages.
8
Healthy Growth
The Benefits
of Cereal
Cereal is low in calories, it’s made with whole grains and fortified
with important nutrients, and it tastes great. That’s why it’s a favorite food,
found in more than 90 percent of U.S. households.
Our broad cereal portfolio appeals
to consumers of all ages in more than
130 markets around the world.
Cheerios is the leading cereal franchise
in the $10 billion U.S. cereal category.
Older consumers like how its whole
grain oats can help lower cholesterol,
and moms trust the nutrition and
quality of Cheerios for their kids. We
recently added Honey Nut Cheerios
Medley Crunch to the franchise. Retail
sales for Lucky Charms grew 8 percent
in 2013 as we began advertising this
49-year-old brand to adults. Cascadian
Farm is the leading brand of granola in
the U.S. — organic or otherwise. Retail
sales for the brand increased 11 percent
last year as we expanded distribution
and introduced new flavors. And kids
and adults alike enjoy Chex cereals.
Gluten-free varieties have contributed
to 10 percent retail sales growth for
this all-family franchise. We launched
gluten-free Vanilla Chex this summer.
Our cereal business in away-from-
home food outlets has been growing
at a mid-single-digit rate over the past
several years. We are the leading cereal
supplier to school breakfast programs,
and our business is expanding in other
foodservice outlets, including college
cafeterias, hospitals and hotel chains.
Cereal Consumption per Capita
Annual kilograms per person
2
.
7
m
o
d
g
n
K
d
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i
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U
3
.
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2
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2
.
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9
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1
9
.
1
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F
8
.
2
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6
.
4
6
.
4
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0
.
4
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Source: Euromonitor calendar 2012
Annual Report 2013
9
Strong Cereal Growth
Ahead in Global Markets
Ready-to-eat cereal sales are growing in markets around the world.
Cereal Partners Worldwide, our joint venture with Nestlé, holds a 22 percent
value share of cereal sales outside North America.
In Canada, we hold the No. 2 share
position in the $1 billion Canadian
cereal category. We’re bringing news
to the category in 2014 with the
launch of Honey Nut Cheerios Hearty
Oat Crunch and Fibre 1 Almond and
Clusters cereal.
The majority of cereal sales today
occur outside of North America, and
cereal continues to gain popularity in
many international markets. Cereal
Partners Worldwide (CPW), our joint
venture with Nestlé, competes in
130 countries and is the No. 2 cereal
manufacturer in these combined
markets. Constant-currency net sales
for CPW grew 2 percent in fiscal
2013, including growth in developed
markets like the UK and France.
Sales grew even faster in many
emerging markets where CPW holds
the leading market position, includ-
ing Russia, Turkey and Indonesia.
This summer, we’re bringing more
innovation to growing markets,
such as Fitness Fibre in Mexico
and Nesquik Pillows in Russia.
Per capita consumption of cereal
is still low in many international
markets and it continues to rise, so
we see great opportunities to grow
our cereal business worldwide.
10
Healthy Growth
Snacking Anytime,
Anywhere
In the U.S., over half of all eating occasions involve a snack. And more
consumers around the world are looking for quick and healthy ways to refuel.
Our snack products now generate $3 billion in annual net sales.
Nature Valley granola bars, launched
almost 40 years ago, can be found
in nearly 80 markets outside the U.S.,
and sales have been growing at a
healthy pace. Introduced in January
2012, Nature Valley Protein bars
generated more than $100 million
in U.S. retail sales in their first year.
In 2014, we’ll launch Nature Valley
Soft Baked Oatmeal Squares, a great
option for a mid-morning snack. We
acquired the Food Should Taste Good
brand in 2012, and retail sales for these
all-natural snack chips grew 6 percent
in measured channels alone in 2013.
We’ll continue to increase distribution
in a variety of outlets, from grocery
stores to drug and convenience stores.
Sales for Lärabar fruit and nut bars
have been growing at a double-digit
pace. ALT protein bars are the newest
addition to the Lärabar line.
In Canada, retail sales for Fibre 1
snacks grew 9 percent in fiscal 2013
with the launch of Fibre 1 brownies,
containing just 110 calories per serving.
In 2014, we’ll add Fibre 1 Protein bars,
with 7 grams of protein per bar, to the
lineup. And in Brazil, we see great
growth opportunities for Yoki popcorn
and other Yoki snack products.
Global Snacks Net Sales
Dollars in millions
4
2
0
,
3
0
5
6
,
2
2
7
3
,
2
11
12
13
Annual Report 2013
11
Meals Made Convenient
Everywhere
Consumer demand for great-tasting, easy-to-prepare meals is growing
around the world. From Wanchai Ferry dumplings in China to Progresso soup
in the U.S., our pantry of convenient meals has been growing at an
8 percent compound rate over the past couple of years.
Consumers worldwide enjoy gather-
ing around a family meal. Old El Paso
dinner kits make it easy to prepare a
Mexican meal in 60 countries. Sales
for this brand are higher outside the
U.S. than inside the U.S. In Europe,
we’re launching one-pan Mexican rice
dinners, and in the U.S., we’ll intro-
duce frozen versions of Old El Paso
Mexican entrees. Wanchai Ferry frozen
foods are growing at a double-digit
rate in 130 cities across China. We’ll
introduce dumplings with regional
flavors, such as mushrooms from the
Yunnan Plateau, in 2014. And in Brazil,
we recently introduced Yoki Kit Fácil, a
Brazilian version of convenient dinner
kits that incorporate Yoki side dishes
and seasonings.
In the U.S., over 1 million families
sit down to a Helper dinner mix every
night. In 2014, we have new products,
new packaging and new advertising
coming on this 42-year-old brand.
Progresso ready-to-serve soup has
posted steady sales and share gains
in recent years. We offer a variety of
great-tasting, good-for-you options like
our newest Light cream-based soups.
12
Healthy Growth
Yogurt Sales Show
Global Growth
The health benefits of yogurt have made this a $76 billion global category.
We’re now the second-largest yogurt company in the world with
a portfolio of leading brands, including Yoplait, Liberté and Go-GURT.
Yogurt is our largest category in
Europe. We posted good sales and
share gains in the UK and France in
fiscal 2013 and have strong product
news coming in 2014. In France,
we’ll introduce Calin beverages,
expanding our Calin line of yogurts
that are high in calcium and vita-
min D for bone strength. In the UK,
we recently launched Liberté Greek
yogurt varieties.
Liberté is the top-selling organic
and natural yogurt in Canada and is
a leading player in the fast-growing
Greek segment, too. Yoplait is the
leader in both the reduced-calorie
and kid segments. Combined,
Yoplait and Liberté account for around
one-third of the nearly $1.5 billion
Canadian yogurt category.
We’ve invested strongly in our U.S.
yogurt business in 2013 with new
product introductions, including
Yoplait Greek 100 calorie yogurt.
Retail sales for this reduced-calorie
yogurt will reach $140 million in its
first year. Go-GURT is the leading brand
in the kid yogurt segment, and we’ll
launch Go-GURT Protein with 5 grams
of protein per tube in 2014.
Yogurt Consumption per Capita
Annual kilograms per person
2
.
1
2
7
.
6
s
e
t
a
t
S
d
e
t
i
n
U
4
.
4
a
i
s
s
u
R
4
.
3
a
n
i
h
C
3
.
0
a
i
s
e
n
o
d
n
I
4
.
0
a
i
d
n
I
2
.
0
1
m
o
d
g
n
K
d
e
t
i
i
n
U
9
9
.
a
i
l
a
r
t
s
u
A
0
7
.
l
i
z
a
r
B
2
.
3
1
4
.
2
1
a
d
a
n
a
C
d
n
a
l
e
r
I
e
c
n
a
r
F
Source: Euromonitor calendar 2012
Annual Report 2013
13
Super-premium Ice Cream
Has Worldwide Appeal
Häagen-Dazs is a leading global brand of super-premium ice cream.
Its high quality and decadent flavors have driven 9 percent constant-currency
sales growth over the past five years.
Häagen-Dazs ice cream is available in
cafes and retail outlets in 80 markets
around the world. In China, our ice
cream sales grew 15 percent on a
constant-currency basis in 2013. We
now have more than 260 shops in that
market and plan to open nearly 80 more
in 2014. Our sales in retail outlets are
growing nicely, too. We’re introducing
new seasonal flavors, like Mango and
Raspberry, in our shops and retail outlets
across China.
In Europe, Häagen-Dazs Secret Sensations
ice cream treats contributed to 6 percent
constant-currency sales growth for
the brand. We’ll launch new
varieties in 2014. We’re also
launching new flavors of
Häagen-Dazs ice cream
sandwiches in Japan, where
constant-currency net sales
for our Häagen-Dazs joint
venture grew 5 percent in 2013.
We recently launched a new
global advertising campaign for
the brand, featuring print, TV and
online ads, inviting consumers
everywhere into the House of
Häagen-Dazs.
14
Healthy Growth
Margins, Cash
and Returns
Our businesses are profitable
and generate strong levels of
operating cash flow. We use some
of that cash for capital investment.
We also return significant cash
to shareholders.
Input Cost Inflation
Percent change
Gross Margin
Percent of net sales
0
1
+
9
+
7
+
6
.
9
3
0
.
0
4
3
.
6
3
1
.
6
3
5
.
5
3
6
.
5
3
Long-term
Average 4–5%
4
+
3
+
08
09
11
12
13
10
3
–
08
09
10
11
12
13
Includes raw materials, energy, labor expense,
carrier rates, and storage and handling.
Net sales less cost of sales.
One of the biggest challenges to
food companies’ profit targets in
recent years has been input cost
inflation, and volatility. Our supply
chain cost inflation has averaged
between 4 and 5 percent in recent
years, with tremendous volatility
around that longer-term average.
However, our gross margin has
held relatively steady over this
period, reflecting the success of
our companywide Holistic Margin
Management (HMM) efforts.
We’ve set a $4 billion cumulative
target for HMM savings across our
supply chain over this decade, and
we are tracking solidly on pace to
that target.
Our food businesses are strong
cash generators. From 2008 to 2013,
cumulative net cash from operations
has totaled over $12.5 billion, or an
average of more than $2 billion a year.
The first call on this cash is capital
investment to support the growth
Cash Flow from Operations
Dollars in millions
Capital Investment
Percent of net sales
6
2
9
,
2
7
0
4
,
2
5
8
1
,
2
7
3
8
,
1
0
3
7
,
1
1
3
5
,
1
Estimate
9
.
3
9
.
3
4
.
4
4
.
4
1
.
4
4
.
3
0
.
4
n
a
h
t
s
s
e
l
08
09
10
11
12
13
08
09
10
11
12
13
14
Annual Report 2013
15
Gross Share Repurchases
Dollars in millions
Dividends Paid
Dollars in millions
Return on Average Total Capital*
Percent
2
3
4
,
1
6
9
2
,
1
4
6
1
,
1
5
4
0
,
1
2
9
6
3
1
3
8
6
0 8
0
9 8
2
7
8
.
3
1
8
.
3
1
Estimate
3
.
2
1
8
.
1
1
7
.
2
1
9
.
1
1
r
e
h
g
H
i
4
4
0 6
8
5
0
3
5
08
09
10
11
12
13
08
09
10
11
12
13
08
09
10
11
12
13
14
*See page 89 for discussion of non-GAAP measures.
opportunities we see across our
business, and to fund cost-saving
projects and essential maintenance
in our manufacturing plants. In recent
years, our capital investment has
averaged roughly 4 percent of net
sales. In 2014, we are estimating
roughly $700 million in capital invest-
ments, with 60 percent of that total
representing growth capacity or cost-
saving projects. Key growth projects
include additional production lines for
separated Greek yogurt, additional
snack bar capacity, and construction
of a research and development center
in Shanghai, China.
After capital investment, we prioritize
cash returns to shareholders. Over the
past six years, cash used for dividends
and share repurchases has totaled
more than $10 billion. In 2014, our plans
include a 15 percent increase in divi-
dends paid, and share repurchases are
expected to reduce our average diluted
share count by 2 percent.
With good earnings growth
planned for 2014, and with much
of our operating cash targeted to
go to shareholders, we expect
to increase our return on average
total capital (ROC) this year. After
several years of good growth in ROC,
we gave up some ground in 2012 and
2013 as we prioritized the strategic
acquisitions of Yoplait and Yoki. We
have a long-term target of improving
ROC by an average of 50 basis
points per year.
16
Healthy Growth
Board of Directors
As of August 1, 2013
William T. Esrey 1, 3
Chairman of the
Board, Spectra
Energy Corp.
(natural gas infra-
structure provider)
and Chairman
Emeritus, Sprint
Nextel Corporation
(telecommunications
systems)
Raymond V.
Gilmartin 2, 4*
Retired Chairman,
President and Chief
Executive Officer,
Merck &
Company, Inc.
(pharmaceuticals)
Bradbury H.
Anderson 2, 5
Retired Chief
Executive Officer
and Vice Chairman,
Best Buy Co., Inc.
(electronics retailer)
R. Kerry Clark 3, 4
Retired Chairman
and Chief Executive
Officer, Cardinal
Health, Inc.
(medical services
and supplies)
Paul Danos 3, 5
Dean, Tuck School
of Business and
Laurence F.
Whittemore
Professor of Business
Administration,
Dartmouth College
Senior Management
As of August 1, 2013
Judith Richards
Hope 1*, 2
Retired Distinguished
Visitor from Practice
and Professor of Law,
Georgetown
University
Law Center
Hilda Ochoa-
Brillembourg 1, 5
Founder, President
and Chief Executive
Officer, Strategic
Investment Group
(investment
management)
Heidi G. Miller 1, 3
Retired President,
JPMorgan
International,
JPMorgan Chase
& Co.
(banking and
financial services)
Steve Odland 2, 4
President and
Chief Executive
Officer, Committee
for Economic
Development (public
policy) and Former
Chairman of the
Board and Chief
Executive Officer,
Office Depot, Inc.
(office products
retailer)
Kendall J. Powell
Chairman of the
Board and Chief
Executive Officer,
General Mills, Inc.
Dorothy A.
Terrell 4, 5*
Managing Partner,
FirstCap Advisors
(venture capital)
Board Committees
1 Audit
2 Compensation
3 Finance
4 Corporate
Governance
5 Public Responsibility
* Denotes
Committee Chair
Michael D. Rose 2*, 4
Retired Chairman
of the Board, First
Horizon National
Corporation
(banking and
financial services)
Robert L. Ryan 1, 3*
Retired Senior Vice
President and Chief
Financial Officer,
Medtronic, Inc.
(medical technology)
Mark W. Addicks
Senior Vice President;
Chief Marketing
Officer
Y. Marc Belton
Executive Vice
President, Global
Strategy, Growth and
Marketing Innovation
Kofi A. Bruce
Vice President;
Treasurer
Gary Chu
Senior Vice President;
President, Greater
China
Juliana L. Chugg
Senior Vice President;
President, Meals
John R. Church
Executive Vice
President, Supply
Chain
David V. Clark
Vice President;
President, Häagen-
Dazs Strategic
Business Unit
Ian R. Friendly
Executive Vice
President; Chief
Operating Officer,
U.S. Retail
Michael L. Davis
Senior Vice President,
Global Human
Resources
David E. Dudick Sr.
Senior Vice President;
President,
Convenience Stores
and Foodservice
Peter C. Erickson
Executive Vice
President, Innovation,
Technology and
Quality
Olivier Faujour
Vice President;
President, Yoplait
International
Jeffrey L.
Harmening
Senior Vice President;
Chief Executive
Officer, Cereal
Partners Worldwide
David P. Homer
Senior Vice President;
President, General
Mills Canada
Christina Law
Vice President;
President, Asia,
Middle East
and Africa
Luis Gabriel
Merizalde
Senior Vice President;
President, Europe,
Australia and
New Zealand
Michele S. Meyer
Vice President;
President, Small
Planet Foods
Donal L. Mulligan
Executive Vice
President; Chief
Financial Officer
James H. Murphy
Senior Vice President;
President,
Big G Cereals
Kimberly A. Nelson
Senior Vice President,
External Relations;
President, General
Mills Foundation
Jonathon J. Nudi
Vice President;
President, Snacks
Rebecca L. O’Grady
Vice President;
President, Yoplait
USA
Shawn P. O’Grady
Senior Vice President;
President, Sales
and Channel
Development
Ann W. H. Simonds
Senior Vice President;
President, Baking
Christi L. Strauss*
Senior Vice President
Christopher D.
O’Leary
Executive Vice
President; Chief
Operating Officer,
International
Roderick A. Palmore
Executive Vice
President; General
Counsel; Chief
Compliance and Risk
Management Officer
and Secretary
Kendall J. Powell
Chairman of the Board
and Chief Executive
Officer
Anton V. Vincent
Vice President;
President, Frozen
Foods
Sean N. Walker
Senior Vice President;
President, Latin
America
Kristen S. Wenker
Senior Vice President,
Investor Relations
Keith A. Woodward
Senior Vice President,
Financial Operations
Jerald A. Young
Vice President;
Controller
*On leave of absence
PB
Healthy Growth
Annual Report 2013
Annual Report 2013
17
17
Financial Review
Contents
Financial Summary
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Reports of Management and Independent Registered
Public Accounting Firm
Consolidated Financial Statements
Notes to Consolidated Financial Statements
1 Basis of Presentation and Reclassifications
2 Summary of Significant Accounting Policies
3 Acquisitions
4 Restructuring, Impairment, and Other Exit Costs
5 Investments in Joint Ventures
6 Goodwill and Other Intangible Assets
7 Financial Instruments, Risk Management Activities and Fair Values
8 Debt
9 Redeemable and Noncontrolling Interests
10 Stockholders’ Equity
11 Stock Plans
12 Earnings per Share
13 Retirement Benefits and Postemployment Benefits
14 Income Taxes
15 Leases, Other Commitments, and Contingencies
16 Business Segment and Geographic Information
17 Supplemental Information
18 Quarterly Data
Glossary
Non-GAAP Measures
Total Return to Stockholders
18
19
43
45
50
50
54
54
56
56
58
65
66
67
69
72
72
80
82
83
84
86
87
89
92
18
Healthy Growth
Annual Report 2013
19
Financial Summary
The following table sets forth selected financial data for each of the fiscal years in the five-year period ended
May 26, 2013:
In Millions, Except Per Share Data, Percentages and Ratios
2013
2012
Fiscal Year
2011
2010
2009(a)
Operating data:
Net sales
Gross margin (b)
Selling, general, and administrative expenses
Segment operating profit (c)
Divestitures (gain)
After-tax earnings from joint ventures
$ 17,774.1
$ 16,657.9
$ 14,880.2
$ 14,635.6
$ 14,555.8
6,423.9
3,552.3
3,197.7
—
98.8
6,044.7
5,953.5
5,800.2
5,174.9
3,380.7
3,192.0
3,162.7
2,893.2
3,011.6
2,945.6
2,840.5
2,624.2
—
88.2
(17.4)
96.4
—
101.7
(84.9)
91.9
Net earnings attributable to General Mills
1,855.2
1,567.3
1,798.3
1,530.5
1,304.4
Depreciation and amortization
Advertising and media expense
Research and development expense
Average shares outstanding:
Basic
Diluted
Earnings per share:
Basic
$
Diluted
$
Diluted, excluding certain items affecting comparability (c) $
Operating ratios:
Gross margin as a percentage of net sales
Selling, general, and administrative expenses as a
percentage of net sales
Segment operating profit as a percentage of net sales (c)
Effective income tax rate
Return on average total capital (b) (c)
588.0
895.0
237.9
648.6
665.6
541.5
913.7
245.4
648.1
666.7
472.6
843.7
235.0
642.7
664.8
457.1
908.5
218.3
659.6
683.3
453.6
732.1
208.2
663.7
687.1
2.86
2.79
2.69
$
$
$
2.42
2.35
2.56
$
$
$
2.80
2.70
2.48
$
$
$
2.32
2.24
2.30
$
$
$
1.96
1.90
1.99
36.1%
36.3%
40.0%
39.6%
35.6%
20.0%
18.0%
29.2%
11.9%
20.3%
18.1%
32.1%
12.7%
21.5%
19.8%
29.7%
13.8%
21.6%
19.4%
35.0%
13.8%
19.9%
18.0%
37.1%
12.3%
Balance sheet data:
Land, buildings, and equipment
Total assets
Long-term debt, excluding current portion
Total debt (b)
Redeemable interest
Noncontrolling interests
Stockholders’ equity
Cash flow data:
Net cash provided by operating activities
Capital expenditures
Net cash used by investing activities
Net cash used by financing activities
Fixed charge coverage ratio
Operating cash flow to debt ratio (b)
Share data:
Low stock price
High stock price
Closing stock price
Cash dividends per common share
$ 3,878.1
$ 3,652.7
$ 3,345.9
$ 3,127.7
$ 3,034.9
22,658.0
21,096.8
18,674.5
17,678.9
17,874.8
5,926.1
7,969.1
967.5
456.3
6,161.9
7,429.6
847.8
461.0
5,542.5
6,885.1
—
5,268.5
6,425.9
—
246.7
245.1
5,754.8
7,075.5
—
244.2
6,672.2
6,421.7
6,365.5
5,402.9
5,172.3
$ 2,926.0
$ 2,407.2
$ 1,531.1
$ 2,185.1
$ 1,836.7
613.9
1,515.4
1,140.2
7.62
36.7%
675.9
1,870.8
666.6
6.26
32.4%
648.8
715.1
940.9
7.03
22.2%
649.9
721.2
562.6
288.9
1,507.7
1,413.0
6.42
34.0%
5.33
26.0%
$
37.55
$
34.95
$
33.57
$
25.59
$
23.61
50.93
48.98
1.32
41.05
39.08
1.22
39.95
39.29
1.12
36.96
35.62
0.96
35.08
25.59
0.86
Number of full- and part-time employees
41,000
34,500
35,000
33,000
30,000
(a) Fiscal 2009 was a 53-week year; all other fiscal years were 52 weeks.
(b) See Glossary on page 87 of this report for definition.
(c) See page 89 of this report for our discussion of this measure not defined by generally accepted accounting principles.
18
Healthy Growth
Annual Report 2013
19
Management’s 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 new products and effective
merchandising. We believe our brand-building strategy
is the key to winning and sustaining leading share
positions in markets around the globe.
Our fundamental business goal is to generate supe-
rior 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 perfor-
mance for our business.
Our specific growth objectives are to consistently deliver:
• low single-digit annual growth in net sales;
• mid single-digit annual growth in total segment oper-
ating profit;
• high single-digit annual growth in diluted EPS
excluding certain items affecting comparability; and
• improvement 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 return a sub-
stantial amount of cash to stockholders through share
repurchases and dividends.
In fiscal 2013 we maintained focus on our core
strategies of brand building investment, international
expansion, customer partnerships, product innovation
and holistic margin management (HMM) initiatives, and
we continued to invest for future growth. For the fiscal
year ended May 26, 2013, our net sales grew 7 percent
and total segment operating profit grew 6 percent. Our
return on average total capital declined by 80 basis
points primarily due to the acquisitions of Yoplait S.A.S.,
Yoplait Marques S.A.S., and Yoki Alimentos S.A. (Yoki).
Diluted EPS grew 19 percent and diluted EPS excluding
certain items affecting comparability increased 5 percent
(See the “Non-GAAP Measures” section on page 89 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)). Net cash provided by operations
totaled $2.9 billion in fiscal 2013, enabling us to partially
fund the acquisition of Yoki and to increase our annual
dividend payments per share by 8 percent from fiscal
2012. We also made significant capital investments
totaling $614 million in fiscal 2013 and repurchased $1.0
billion of shares of common stock.
We achieved the following related to our key operating
objectives for fiscal 2013:
• We increased our worldwide sales base and
strengthened our portfolio by making key strategic
acquisitions that expanded our participation in fast-
growing food categories and emerging markets, and
grew net sales by 7 percent.
• We sustained a high level of new product activity, and
executed effective marketing and merchandising actions
in support of our leading brands and global platforms
around the world.
• We achieved a 6 percent increase in total segment
operating profit driven by our ongoing HMM program,
the effect of our restructuring plan announced in May
2012, volume growth from existing businesses, and
contributions from new businesses.
• Our strong cash flows allowed us to fund the
acquisition of new businesses in fiscal 2013 and also
repurchase sufficient shares of company stock to more
than offset stock option exercises during the year.
Details of our financial results are provided in the “Fiscal
2013 Consolidated Results of Operations” section below.
In fiscal 2014, we expect to generate growth consistent
with our long-term model:
• 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 net sales
driven by volume growth, with incremental contributions
from new businesses added in fiscal 2013.
• We are targeting mid single-digit growth in total segment
operating profit in fiscal 2014 including incremental
contributions from new businesses. We expect our HMM
discipline of cost savings and mix management to more
than offset expected input cost inflation.
• We are targeting high single-digit growth in diluted
EPS excluding certain items affecting comparability.
20
Healthy Growth
Annual Report 2013
21
• We expect to deliver increased cash returns to
shareholders in fiscal 2014, including a 15 percent
dividend increase and share repurchases that are
expected to result in a 2 percent net reduction in shares
outstanding.
Our businesses generate strong levels of cash flows
and we will use some of this cash to reinvest in our
business. Our fiscal 2014 plans call for approximately
$700 million of expenditures for capital projects.
Certain terms used throughout this report are defined
in a glossary on page 87 and 88 of this report.
FISCAL 2013 CONSOLIDATED RESULTS OF OPERATIONS
Our consolidated results for fiscal 2013 include operat-
ing activity from the acquisitions of Yoki in Brazil, Yoplait
Ireland, Food Should Taste Good in the United States,
Parampara Foods in India, Immaculate Baking Company
in the United States, and the assumption of the Canadian
Yoplait franchise license (Yoplait Canada). Also included in
the first quarter of fiscal 2013 are two additional months
of results from the acquisition of Yoplait S.A.S. Collectively,
these items are referred to as “new businesses.”
Fiscal 2013 net sales grew 7 percent to $17,774
million. In fiscal 2013, net earnings attributable to
General Mills was $1,855 million, up 18 percent from
$1,567 million in fiscal 2012, and we reported diluted
EPS of $2.79 in fiscal 2013, up 19 percent from $2.35
in fiscal 2012. Fiscal 2013 results include the effects
from various discrete tax items, restructuring charges
related to our fiscal 2012 productivity and cost savings
plan, integration costs resulting from the acquisition
of Yoki, and gains from the mark-to-market valuation
of certain commodity positions and grain inventories.
Fiscal 2012 results include losses from the mark-to-
market valuation of certain commodity positions and
grain inventories, restructuring charges related to our
2012 productivity and cost savings plan, and integration
costs resulting from the acquisitions of Yoplait S.A.S.
and Yoplait Marques S.A.S. Diluted EPS excluding these
items affecting comparability totaled $2.69 in fiscal 2013,
up 5 percent from $2.56 in fiscal 2012 (see the “Non-
GAAP Measures” section on page 89 for a description of
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
Contributions from volume growth (a)
Net price realization and mix
Foreign currency exchange
Net sales growth
Fiscal 2013
vs. 2012
9 pts
(1) pt
(1) pt
7 pts
(a) Measured in tons based on the stated weight of our product shipments.
Net sales grew 7 percent in fiscal 2013, including
6 percentage points of growth contributed by new
businesses, primarily Yoki, Yoplait S.A.S., and Yoplait
Canada. Excluding the impact of new businesses, net
sales grew 2 percent, partially offset by 1 percentage point
of unfavorable foreign currency exchange. Contributions
from volume growth increased net sales by 9 percentage
points, including 8 percentage points of contribution
from volume growth due to new businesses. Unfavorable
net price realization and mix decreased net sales
growth by 1 percentage point and unfavorable foreign
currency exchange decreased net sales growth by 1
percentage point.
Cost of sales increased $737 million in fiscal 2013
to $11,350 million. Higher volume drove a $982 million
increase in cost of sales. We also recorded a $17 million
non-recurring expense related to the assumption of
the Canadian Yoplait franchise license in fiscal 2013.
These increases were partially offset by a $154 million
decrease in cost of sales attributable to product mix. In
fiscal 2013, we recorded a $4 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 on
page 58 of this report, compared to a net increase of
$104 million in fiscal 2012.
Gross margin grew 6 percent in fiscal 2013 versus
fiscal 2012. Gross margin as a percent of net sales of 36
percent was relatively flat compared to fiscal 2012.
Selling, general and administrative (SG&A) expenses
were up $172 million in fiscal 2013 versus fiscal 2012.
The increase in SG&A expenses was primarily driven
by the addition of new businesses and an increase in
pension expense. In addition, we recorded a $25 million
foreign exchange loss resulting from the remeasurement
of assets and liabilities of our Venezuelan subsidiary
following the devaluation of the bolivar in fiscal 2013.
Excluding these items, SG&A expenses decreased
compared to last year, including a 2 percent decrease
in advertising and media expense compared to fiscal
2012. SG&A expenses as a percent of net sales were flat
compared to fiscal 2012.
20
Healthy Growth
Annual Report 2013
21
Restructuring, impairment, and other exit costs
totaled $20 million in fiscal 2013 as follows:
Expense, in Millions
Charges associated with restructuring
actions previously announced
Total
$ 19.8
$ 19.8
In fiscal 2013, we recorded a $19 million restructuring
charge related to a productivity and cost savings plan
approved in the fourth quarter of fiscal 2012, consisting
of $11 million of employee severance expense and other
exit costs of $8 million. All of our operating segments
were affected by these actions including $16 million
related to our International segment, $2 million related
to our U.S. Retail segment, and $1 million related to our
Bakeries and Foodservice segment. These restructuring
actions are expected to be completed by the end of
fiscal 2014. In addition, we recorded $1 million of
charges associated with other previously announced
restructuring actions. In fiscal 2013, we paid $80 million
in cash related to restructuring actions.
Interest, net for fiscal 2013 totaled $317 million, $35
million lower than fiscal 2012. The average interest rate
decreased 60 basis points, including the effect of the
mix of debt, generating a $43 million decrease in net
interest. Average interest bearing instruments increased
$167 million, primarily from an increase in incremental
borrowing to fund the acquisition of Yoki, generating an
$8 million increase in net interest.
Our consolidated effective tax rate for fiscal 2013 was
29.2 percent compared to 32.1 percent in fiscal 2012.
The 2.9 percentage point decrease was primarily related
to the restructuring of our General Mills Cereals, LLC
(GMC) subsidiary during the first quarter of fiscal 2013
which resulted in a $63 million decrease to deferred
income tax liabilities related to the tax basis of the
investment in GMC and certain distributed assets, with
a corresponding discrete non-cash reduction to income
taxes. During fiscal 2013, we also recorded a $34 million
discrete decrease in income tax expense and an increase
in our deferred tax assets related to certain actions
taken to restore part of the tax benefits associated with
Medicare Part D subsidies which had previously been
reduced in fiscal 2010 with the enactment of the Patient
Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act of 2010.
Our fiscal 2013 tax expense also includes a $12 million
charge associated with the liquidation of a corporate
investment.
After-tax earnings from joint ventures for fiscal 2013
increased to $99 million compared to $88 million in
fiscal 2012 primarily due to higher tax rates in fiscal 2012
as a result of discrete tax items and higher operating
profit offset by unfavorable foreign currency exchange
in fiscal 2013.
The change in net sales for each joint venture is set
forth in the following table:
Joint Venture Change in Net Sales
CPW
HDJ
Joint Ventures
Fiscal 2013
vs. 2012
(1)%
(2)
(1)%
In fiscal 2013, CPW net sales declined by 1 percentage
point as 2 percentage points of net sales growth from
favorable net price realization and mix were offset by 3
percentage points of net sales decline from unfavorable
foreign currency exchange. Contribution from volume
growth was flat compared to fiscal 2012. In fiscal 2013,
net sales for HDJ decreased 2 percentage points from
fiscal 2012 as 6 percentage points of net sales growth
from volume contribution was offset by 7 percentage
points of net sales decline from unfavorable foreign
currency exchange and 1 percentage point of net sales
decline attributable to unfavorable net price realization
and mix.
Average diluted shares outstanding decreased by 1
million in fiscal 2013 from fiscal 2012, due primarily to
the repurchase of 24 million shares, including 6 million
purchased under an accelerated share repurchase (ASR)
agreement.
FISCAL 2013 CONSOLIDATED BALANCE
SHEET ANALYSIS
Cash and cash equivalents increased $270 million from
fiscal 2012, as discussed in the “Liquidity” section on
page 28.
Receivables increased $123 million from fiscal 2012
primarily as a result of the acquisition of Yoki.
Inventories increased $67 million from fiscal 2012
primarily as a result of the acquisition of Yoki.
Prepaid expenses and other current assets increased
$80 million from fiscal 2012, mainly due to an increase in
other receivables related to the liquidation of a corporate
investment.
Land, buildings, and equipment increased $225
million from fiscal 2012, as $614 million of capital
22
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Annual Report 2013
23
expenditures and $216 million of additions from acquired
businesses were partially offset by depreciation expense
of $552 million.
Goodwill and other intangible assets increased $750
million from fiscal 2012. We recorded $407 million of
goodwill and $311 million of other intangible assets
related to acquisitions in fiscal 2013.
Other assets decreased $22 million from fiscal 2012,
primarily related to the liquidation of a corporate
investment.
Accounts payable increased $274 million from fiscal
2012, primarily due to the acquisition of Yoki and the
extension of payment terms.
Long-term debt, including current portion, and notes
payable increased $540 million from fiscal 2012 primarily
due to $1.0 billion of debt issuances, partially offset by
$587 million of debt and commercial paper repayments.
The current and noncurrent portions of net deferred
income taxes liability increased $149 million from fiscal
2012 primarily as a result of contributions to our pension
plan in fiscal 2013.
Other current liabilities increased $401 million from
fiscal 2012, primarily driven by increases in dividend
accruals and trade and consumer accruals.
Other liabilities decreased $237 million from
fiscal 2012, primarily driven by a decrease in pension,
postemployment, and postretirement liabilities.
Redeemable interest increased $120 million from
fiscal 2012, primarily due to a $104 million increase in
the redemption value of the redeemable interest.
Retained earnings increased $744 million from
fiscal 2012, reflecting fiscal 2013 net earnings of $1,855
million less dividends paid of $868 million and dividends
declared of $243 million. Treasury stock increased $510
million from fiscal 2012, due to $1,015 million of share
repurchases, including $270 million related to an ASR
agreement, partially offset by $505 million related to
stock-based compensation plans. Additional paid in
capital decreased $142 million from fiscal 2012, including
$30 million related to an ASR agreement. Accumulated
other comprehensive loss (AOCI) decreased by $158
million after-tax from fiscal 2012, primarily driven by
pension and postemployment activity of $144 million.
Noncontrolling interests decreased $5 million in
fiscal 2013.
FISCAL 2012 CONSOLIDATED RESULTS OF
OPERATIONS
Fiscal 2012 net sales grew 12 percent to $16,658 million.
In fiscal 2012, net earnings attributable to General
Mills was $1,567 million, down 13 percent from $1,798
million in fiscal 2011, and we reported diluted EPS of
$2.35 in fiscal 2012, down 13 percent from $2.70 in fiscal
2011. Fiscal 2012 results include losses from the mark-
to-market valuation of certain commodity positions
and grain inventories versus fiscal 2011 which included
gains. Fiscal 2012 results also include restructuring
charges reflecting employee severance expense and
the write-off of certain long-lived assets related to our
2012 productivity and cost savings plan and integration
costs resulting from the acquisitions of Yoplait S.A.S.
and Yoplait Marques S.A.S. Fiscal 2011 results include
the net benefit from the resolution of uncertain tax
matters. Diluted EPS excluding these items affecting
comparability was $2.56 in fiscal 2012, up 3 percent
from $2.48 in fiscal 2011 (see the “Non-GAAP Measures”
section on page 89 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
Contributions from volume growth (a)
Net price realization and mix
Foreign currency exchange
Net sales growth
Fiscal 2012
vs. 2011
9 pts
3 pts
Flat
12 pts
(a) Measured in tons based on the stated weight of our product shipments.
Net sales grew 12 percent in fiscal 2012, due to 9
percentage points of contribution from volume growth,
including 12 percentage points of volume growth
contributed by the acquisition of Yoplait S.A.S. Net price
realization and mix contributed 3 percentage points of
net sales growth. Foreign currency exchange was flat
compared to fiscal 2011.
Cost of sales increased $1,686 million in fiscal 2012
to $10,613 million. This increase was driven by an $877
million increase attributable to higher volume and a $610
million increase attributable to higher input costs and
product mix. We recorded a $104 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 on page 58 of this report, compared to a net
decrease of $95 million in fiscal 2011.
Gross margin grew 2 percent in fiscal 2012 versus
fiscal 2011. Gross margin as a percent of net sales
decreased by 370 basis points from fiscal 2011 to fiscal
2012. This decrease was primarily driven by higher
22
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Annual Report 2013
23
input costs and losses from mark-to-market valuation
of certain commodity positions and grain inventories in
fiscal 2012 versus gains in fiscal 2011.
Selling, general and administrative (SG&A) expenses
were up $189 million in fiscal 2012 versus fiscal 2011.
SG&A expenses as a percent of net sales in fiscal 2012
decreased by 1 percentage point compared to fiscal 2011.
The increase in SG&A expenses was primarily driven
by the acquisition of Yoplait S.A.S. and an 8 percent
increase in advertising and media expense.
There were no divestitures in fiscal 2012. In fiscal
2011, we recorded a net divestiture gain of $17 million
consisting of 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.
Restructuring, impairment, and other exit costs
Yoplait Marques S.A.S., generating a $46 million increase
in net interest. The average interest rate decreased 55
basis points, including the effect of the mix of debt,
generating a $40 million decrease in net interest.
Our consolidated effective tax rate for fiscal 2012 was
32.1 percent compared to 29.7 percent in fiscal 2011. The
2.4 percentage point increase 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.
After-tax earnings from joint ventures for fiscal 2012
decreased to $88 million compared to $96 million in
fiscal 2011 primarily due to higher effective tax rates as a
result of discrete tax items in fiscal 2012.
The change in net sales for each joint venture is set
forth in the following table:
totaled $102 million in fiscal 2012 as follows:
Joint Venture Change in Net Sales
Expense, in Millions
Productivity and cost savings plan
Charges associated with restructuring actions
previously announced
Total
CPW
HDJ
Joint Ventures
$100.6
1.0
$101.6
Fiscal 2012
vs. 2011
4%
11
5%
In fiscal 2012, we approved a major productivity and
cost savings plan designed to improve organizational
effectiveness and focus on key growth strategies. The plan
included organizational changes to strengthen business
alignment, and actions to accelerate administrative
efficiencies across all of our operating segments and
support functions. In connection with this initiative,
we eliminated approximately 850 positions globally and
recorded a $101 million restructuring charge, consisting
of $88 million of employee severance expense and a non-
cash charge of $13 million related to the write-off of
certain long-lived assets in our U.S. Retail segment. All
of our operating segments and support functions were
affected by these actions including $70 million related
to our U.S. Retail segment, $12 million related to our
Bakeries and Foodservice segment, $10 million related to
our International segment, and $9 million related to our
administrative functions. These restructuring actions are
expected to be completed by the end of fiscal 2014. In fiscal
2012, we paid $4 million in cash related to restructuring
actions taken in fiscal 2012 and previous years.
Interest, net for fiscal 2012 totaled $352 million, $6
million higher than fiscal 2011. Average interest bearing
instruments increased $792 million in fiscal 2012,
primarily due to the acquisitions of Yoplait S.A.S. and
In fiscal 2012, CPW net sales grew by 4 percent due to
3 percentage points attributable to net price realization
and mix, and a 2 percentage point increase from volume,
partially offset by a 1 percentage point decrease from
unfavorable foreign currency exchange. In fiscal 2012,
net sales for HDJ increased 11 percent from fiscal 2011
due to 7 percentage points of favorable foreign currency
exchange, 3 percentage points due to an increase in
volume, and 1 percentage point attributable to net price
realization and mix.
Average diluted shares outstanding increased by 2
million in fiscal 2012 from fiscal 2011, due primarily to the
issuance of common stock from stock option exercises,
partially offset by share repurchases.
RESULTS OF SEGMENT OPERATIONS
Our businesses are organized into three operating
segments: U.S. Retail; International; and Bakeries and
Foodservice.
Beginning with the first quarter of fiscal 2013,
we realigned certain divisions within our U.S. Retail
operating segment and certain geographic regions within
our International operating segment. We revised the
amounts previously reported in the net sales percentage
change by division within our U.S. Retail segment and
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Annual Report 2013
25
geographic regions within our International segment.
These realignments had no effect on previously reported
consolidated net sales, operating segments’ net sales,
operating profit, segment operating profit, net earnings
attributable to General Mills, or earnings per share.
In the U.S. Retail segment, Big G, Snacks, Yoplait, and
Small Planet Foods were unchanged. Baking Products
combines our baking aisle and refrigerated dough
products. Frozen Foods includes our frozen products,
as well as Green Giant canned vegetables. Meals
includes dinner mixes, side dishes, Mexican products,
and Progresso soups. In the International segment,
Canada was unchanged. The Australia and New Zealand
businesses were realigned with our Europe region. The
Turkey, North Africa, South Africa, and Middle East
businesses were realigned with our Asia/Pacific region.
The following tables provide the dollar amount and
percentage of net sales and operating profit from each
segment for fiscal years 2013, 2012, and 2011:
Net Sales
In Millions
U.S. Retail
International
Bakeries and Foodservice
Total
Segment Operating Profit
U.S. Retail
International
Bakeries and Foodservice
Total
2013
Fiscal Year
2012
2011
Dollars
Percent
of Total
Dollars
Percent
of Total
Dollars
Percent
of Total
$10,614.9
60%
$10,480.2
63%
$10,163.9
5,200.2
1,959.0
29
11
4,194.3
1,983.4
25
12
2,875.5
1,840.8
69%
19
12
$17,774.1
100%
$16,657.9
100%
$14,880.2
100%
$2,392.9
75%
$2,295.3
76%
$2,347.9
490.2
314.6
15
10
429.6
286.7
14
10
291.4
306.3
80%
10
10
$3,197.7
100%
$3,011.6
100%
$2,945.6
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 product categories
in this business segment include 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 granola bars, cereal, and soup.
In fiscal 2013, net sales for our U.S. Retail segment
were $10.6 billion, up 1 percent from fiscal 2012 due
to contributions from volume growth. Net price
realization and mix was flat compared to fiscal 2012.
In fiscal 2012, net sales for this segment totaled
$10.5 billion, up 3 percent from fiscal 2011. Net price
realization and mix contributed 9 percentage points
of growth, partially offset by a 6 percentage point
decrease due to lower pound volume.
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Annual Report 2013
25
Components of U.S. Retail Net Sales Growth
Fiscal 2013
vs. 2012
Fiscal 2012
vs. 2011
Contributions from volume growth (a)
Net price realization and mix
Net sales growth
1 pt
Flat
1 pt
(6) pts
9 pts
3 pts
(a) Measured in tons based on the stated weight of our product shipments.
Net sales for our U.S. retail divisions are shown in the
tables below:
U.S. Retail Net Sales by Division
In Millions
Big G
Fiscal Year
2013
2012
2011
$ 2,340.8 $ 2,387.9 $ 2,293.6
Baking Products
1,845.7
1,792.8
1,736.0
Snacks
Frozen Foods
Meals
Yoplait
1,717.2
1,578.6
1,378.3
1,549.6
1,601.0
1,596.8
1,481.0
1,452.8
1,431.5
1,352.6
1,418.5
1,499.0
Small Planet Foods and other
328.0
248.6
228.7
Total
$10,614.9 $10,480.2 $10,163.9
U.S. Retail Net Sales Percentage
Change by Division
Big G
Baking Products
Snacks
Frozen Foods
Meals
Yoplait
Small Planet Foods
Total
Fiscal 2013
vs. 2012
Fiscal 2012
vs. 2011
(2)%
3
9
(3)
2
(5)
35
1%
4%
3
15
Flat
2
(5)
19
3%
The 1 percentage point increase in the fiscal 2013 U.S.
Retail segment net sales was driven by the Snacks, Small
Planet Foods, Baking Products, and Meals divisions,
partially offset by declines in the Yoplait, Frozen Foods,
and Big G divisions.
The 3 percentage point increase in the fiscal 2012
U.S. Retail segment net sales was driven by the Snacks,
Big G, Baking Products, Small Planet Foods, and Meals
divisions, partially offset by declines in the Yoplait
division. Frozen Foods net sales were flat compared to
fiscal 2011.
Segment operating profit of $2.4 billion in fiscal 2013
improved $98 million, or 4 percent, from fiscal 2012. The
increase was primarily driven by a 5 percent reduction
in advertising and media expense, favorable net price
realization and mix, and higher volume, partially offset
by an increase in input costs.
Segment operating profit of $2.3 billion in fiscal 2012
declined $53 million, or 2 percent, from fiscal 2011. The
decrease was primarily driven by higher input costs,
lower volume, and a 5 percent increase in advertising
and media expense.
International Segment Our International segment
consists of retail and foodservice businesses outside of
the United States. In Canada, our product categories
include ready-to-eat cereals, shelf stable and frozen
vegetables, dry dinners, refrigerated and frozen dough
products, dessert and baking mixes, frozen pizza snacks,
refrigerated yogurt, and grain and fruit snacks. In
markets outside North America, our product categories
include super-premium ice cream and frozen desserts,
refrigerated yogurt, 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 and
franchise fees are reported in the region or country
where the end customer is located.
As part of a long-term plan to conform the fiscal year
ends of all our operations, we have changed the reporting
period of certain countries within our International
segment from an April fiscal year end to a May fiscal
year end to match our fiscal calendar. Accordingly, in the
year of change, our results include 13 months of results
from the affected operations compared to 12 months
in previous fiscal years. In fiscal 2013, we changed
the reporting period for our operations in Europe and
Australia. The impact of these changes was not material
to the fiscal 2013 International segment results of
operations.
Net sales for our International segment totaled $5,200
million in fiscal 2013, up 24 percent from $4,194 million
in fiscal 2012. The growth in fiscal 2013 was driven by
21 percentage points from new businesses, primarily
Yoki, Yoplait S.A.S., and Yoplait Canada. Excluding the
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Annual Report 2013
27
impact of new businesses, net sales were up 3 percent.
Volume contributed 34 percentage points of net sales
growth, including 32 percentage points resulting from
new businesses, partially offset by 6 percentage points of
unfavorable net price realization and mix and 4 percentage
points of unfavorable foreign currency exchange.
Net sales totaled $4,194 million in fiscal 2012, up 46
percent from $2,876 million in fiscal 2011. The growth in
fiscal 2012 was driven by 36 percentage points contributed
by the acquisition of Yoplait S.A.S. Volume contributed
65 percentage points of net sales growth, including 63
percentage points resulting from the acquisition of
Yoplait S.A.S., and favorable foreign currency exchange
contributed 1 percentage point of net sales growth. These
gains were partially offset by a decrease of 20 percentage
points due to unfavorable net price realization and mix
resulting from the acquisition of Yoplait S.A.S.
Components of International Net Sales Growth
Contributions from volume growth (a)
Net price realization and mix
Foreign currency exchange
Net sales growth
Fiscal 2013
vs. 2012
Fiscal 2012
vs. 2011
34 pts
(6) pts
(4) pts
24 pts
65 pts
(20) pts
1 pt
46 pts
(a) Measured in tons based on the stated weight of our product shipments.
Net sales for our International segment by geographic
region are shown in the following tables:
International Net Sales by Geographic Region
In Millions
Europe (a)
Canada
Asia/Pacific
Latin America
Total
Fiscal Year
2013
2012
2011
$2,214.6
$1,988.5
$1,079.2
1,210.5
899.1
876.0
990.9
810.1
404.8
769.9
663.7
362.7
$5,200.2
$4,194.3
$2,875.5
(a) Fiscal 2013 net sales for the Europe region include an additional month
of results.
International Change in Net Sales by Geographic Region
Percentage Change in
Net Sales as Reported
Percentage Change in
Net Sales on Constant
Currency Basis (a)
Fiscal 2013
vs. 2012
Fiscal 2012
vs. 2011
Fiscal 2013 Fiscal 2012
vs. 2011
vs. 2012
Europe (b)
Canada
Asia/Pacific
Latin America
Total (b)
11%
22
11
116
24%
84%
29
22
12
46%
15%
22
11
139
28%
83%
28
20
14
45%
(a) See the “Non-GAAP Measures” section on page 89 for our use of this
measure.
(b) Fiscal 2013 percentage change in net sales as reported for the Europe
region includes 4 percentage points of growth due to an additional month
of results. The impact to fiscal 2013 net sales growth for the International
segment was not material.
The 24 percentage point increase in the International
segment fiscal 2013 net sales was driven by growth
across all regions. On a constant currency basis,
International segment net sales grew 28 percent, with
139 percent growth in the Latin America region, 15
percent growth in the Europe region, 22 percent growth
in the Canada region, and 11 percent growth in the Asia/
Pacific region.
The 46 percentage point increase in the International
segment fiscal 2012 net sales was driven by growth
across all regions. On a constant currency basis,
International segment net sales grew 45 percent, with
83 percent growth in the Europe region, 28 percent
growth in the Canada region, 20 percent growth in the
Asia/Pacific region, and 14 percent growth in the Latin
America region.
Segment operating profit for fiscal 2013 grew 14
percent to $490 million from $430 million in fiscal 2012,
primarily driven by volume growth, the Yoki acquisition,
and a full year of activity from Yoplait S.A.S., partially
offset by unfavorable foreign currency exchange.
During fiscal 2010, Venezuela became a highly
inflationary economy. In February 2013, the Venezuelan
government devalued the bolivar by resetting the official
exchange rate. The effect of the devaluation in fiscal
2013 was a $25 million foreign exchange loss in segment
operating profit resulting from the remeasurement of
assets and liabilities of our Venezuelan subsidiary. We
continue to use the official exchange rate to remeasure
the financial statements of our Venezuelan operations,
as we expect to remit dividends through transactions at
the official rate. We do not expect that the effects of the
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Annual Report 2013
27
devaluation will have a material impact on our results in
the future.
Segment operating profit for fiscal 2012 grew 47
percent to $430 million, from $291 million in fiscal 2011,
primarily driven by the acquisition of Yoplait S.A.S.,
higher volume, and favorable foreign currency effects.
Bakeries and Foodservice Segment In our Bakeries
and Foodservice segment our product categories include
ready-to-eat cereals, snacks, refrigerated 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 segment’s
operations are located in the United States.
For fiscal 2013, net sales for our Bakeries and
Foodservice segment decreased 1 percent to $1,959
million due to lower pound volume. Net price realization
and mix was flat compared to fiscal 2012 as gains
from favorable product mix were offset by declines in
commodity index priced items.
For fiscal 2012, net sales for our Bakeries and
Foodservice segment increased 8 percent to $1,983 million.
The increase in fiscal 2012 was driven by an increase in
net price realization and mix of 7 percentage points and 1
percentage point contributed by volume growth.
Components of Bakeries and Foodservice Net Sales Growth
Contributions from volume growth (a)
Net price realization and mix
Foreign currency exchange
Net sales growth
Fiscal 2013
vs. 2012
Fiscal 2012
vs. 2011
(1) pt
Flat
NM
(1) pt
1 pt
7 pts
NM
8 pts
(a) Measured in tons based on the stated weight of our product shipments.
Net sales for our Bakeries and Foodservice segment
are shown in the following table:
Bakeries and Foodservice Net Sales
In Millions
Total
Fiscal Year
2013
2012
2011
$1,959.0
$ 1,983.4
$1,840.8
In fiscal 2013, segment operating profit was $315
million, up 10 percent from $287 million in fiscal 2012.
The increase was primarily driven by favorable product
mix, lower manufacturing and input costs, and reduced
administrative costs.
In fiscal 2012, segment operating profit was $287
million, down 6 percent from $306 million in fiscal
2011. The decrease was primarily driven by lower grain
merchandising earnings.
Unallocated Corporate Items Unallocated corporate
items include corporate overhead expenses, variances
to planned domestic employee benefits and incentives,
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 on page 50 of
this report.
For fiscal 2013, unallocated corporate expense totaled
$326 million compared to $348 million last year. In
fiscal 2013 we recorded a $4 million net decrease in
expense related to mark-to-market valuation of certain
commodity positions and grain inventories, compared to
a $104 million net increase in expense last year. Pension
expense increased $40 million in fiscal 2013 compared to
fiscal 2012. In fiscal 2013, we also recorded $12 million of
integration costs related to the acquisition of Yoki.
Unallocated corporate expense totaled $348 million in
fiscal 2012 compared to $184 million in fiscal 2011. In
fiscal 2012, we recorded a $104 million net increase in
expense related to mark-to-market valuation of certain
commodity positions and grain inventories, compared to
a $95 million net decrease in expense in fiscal 2011. In
fiscal 2012, we also recorded $11 million of integration
costs related to the acquisitions of Yoplait S.A.S. and
Yoplait Marques S.A.S. These increases in expense were
partially offset by a decrease in compensation and benefit
expense compared to fiscal 2011.
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Annual Report 2013
29
IMPACT OF INFLATION
Cash Flows from Operations
We have experienced significant input cost volatility
since fiscal 2006. Our gross margin performance in
fiscal 2013 reflects the impact of 3 percent input cost
inflation, primarily on commodities inputs. We expect
the rate of inflation of commodities and energy costs
to be consistent in fiscal 2014. We attempt to minimize
the effects of inflation through planning and operating
practices. Our risk management practices are discussed
on pages 41 and 42 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 2013, 2012, or 2011 results of operations. Given
the complexity of the Act, the extended time period
over which the reforms will be implemented, and the
unknown impact of future regulatory guidance, the full
impact of the Act on future periods will not be known
until those regulations are adopted.
In Millions
2013
2012
2011
Fiscal Year
Net earnings, including
earnings attributable to
noncontrolling interests
$1,892.5 $1,589.1 $1,803.5
Depreciation and amortization
588.0
541.5
472.6
After-tax earnings from
joint ventures
(98.8)
(88.2)
(96.4)
Distributions of earnings
from joint ventures
115.7
68.0
Stock-based compensation
100.4
108.3
Deferred income taxes
81.8
149.4
72.7
105.3
205.3
Tax benefit on exercised options
(103.0)
(63.1)
(106.2)
Pension and other postretirement
benefit plan contributions
(223.2)
(222.2)
(220.8)
Pension and other postretirement
benefit plan expense
131.2
77.8
Divestitures (gain)
—
—
73.6
(17.4)
Restructuring, impairment,
and other exit costs
Changes in current
(60.2)
97.8
(1.3)
assets and liabilities
471.1
243.8
(720.9)
Other, net
Net cash provided by
30.5
(95.0)
(38.9)
operating activities
$2,926.0 $2,407.2 $1,531.1
LIQUIDITY
The primary source of our liquidity is cash flow from
operations. Over the most recent three-year period,
our operations have generated $6.9 billion in cash. A
substantial portion of this operating cash flow has been
returned to stockholders through share repurchases and
dividends. We also use this source of liquidity to fund our
capital expenditures and acquisitions. We typically use a
combination of cash, notes payable, and long-term debt
to finance acquisitions and major capital expansions.
As of May 26, 2013, we had $714 million of cash and
cash equivalents held in foreign jurisdictions which will
be used to fund foreign operations and acquisitions.
There is currently no need to repatriate these funds in
order to meet domestic funding obligations or scheduled
cash distributions. If we choose to repatriate cash held
in foreign jurisdictions, we expect to do so only in a tax-
neutral manner.
In fiscal 2013, our operations generated $2.9 billion
of cash compared to $2.4 billion in fiscal 2012. The
$519 million increase is primarily due to a $303 million
increase in net earnings and $227 million from changes
in current assets and liabilities. Other current liabilities
accounted for $336 million of the increase in current
assets and liabilities due to trade and tax accruals, and
accounts payable accounted for $252 million of the
increase partly as the result of the extension of payment
terms. These were partially offset by a $214 million
change in prepaid expenses and other current assets
primarily due to changes in derivative receivables and
changes in other receivables related to the liquidation
of a corporate investment, and a $126 million change
in inventory largely driven by a lower level of inventory
reduction activity compared to fiscal 2012. In both fiscal
2013 and fiscal 2012, we made a $200 million voluntary
contribution to our principal domestic pension plans.
In addition, we paid $80 million in cash related to
restructuring actions in fiscal 2013.
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29
We strive to grow core working capital at or below our
growth in net sales. For fiscal 2013, core working capital
decreased 5 percent, compared to net sales growth
of 7 percent, primarily due to an increase in accounts
payable. In fiscal 2012, core working capital decreased 7
percent, compared to net sales growth of 12 percent, and
in fiscal 2011, core working capital increased 16 percent,
compared to net sales growth of 2 percent.
In fiscal 2012, our operations generated $2.4 billion
of cash compared to $1.5 billion in fiscal 2011. The $876
million increase primarily reflects changes in current
assets and liabilities, including a $384 million increase
driven by inventory reduction efforts in fiscal 2012.
Prepaid expenses and other current assets accounted for
a $245 million increase, primarily reflecting changes in
foreign currency hedges and the fair value of open grain
contracts. Other current liabilities accounted for a $386
million increase, primarily reflecting changes in accrued
income taxes as a result of audit settlements and
court decisions in fiscal 2011 and changes in consumer
marketing and related accruals. The favorable change in
working capital was offset by a $214 million decrease in
net earnings. Additionally, fiscal 2012 included non-cash
restructuring charges of $101 million reflecting employee
severance expense and the write-off of certain long-
lived assets. In both fiscal 2012 and fiscal 2011, we made
a $200 million voluntary contribution to our principal
domestic pension plans.
Cash Flows from Investing Activities
comprised of $820 million of cash, net of $31 million of
cash acquired, and $120 million of non-cash consideration
for debt assumed. We invested $614 million in land,
buildings, and equipment in fiscal 2013, $62 million less
than the same period last year. In addition, we received $16
million in payments from Sodiaal International (Sodiaal) in
fiscal 2013 against the $132 million exchangeable note we
purchased in fiscal 2012.
In fiscal 2012, cash used by investing activities increased
by $1.2 billion from fiscal 2011. The increased use of cash
primarily reflected the acquisitions of Yoplait S.A.S. and
Yoplait Marques S.A.S. in fiscal 2012 for an aggregate
purchase price of $1.2 billion, comprised of $900 million
of cash, net of $30 million of cash acquired, and $261
million of non-cash consideration for debt assumed. In
addition, we purchased a zero coupon exchangeable note
due in 2016 from Sodiaal with a notional amount of $132
million. We invested $676 million in land, buildings, and
equipment in fiscal 2012.
We expect capital expenditures to be approximately
$700 million in fiscal 2014. These expenditures will
support initiatives that are expected to: increase
manufacturing capacity for Greek yogurt; fuel
International growth and expansion; and continue HMM
initiatives throughout our supply chain.
Cash Flows from Financing Activities
In Millions
2013
2012
2011
Fiscal Year
Fiscal Year
Issuance of long-term debt
1,001.1
1,390.5
1,200.0
Change in notes payable
$
(44.5) $ 227.9 $ (742.6)
In Millions
2013
2012
2011
Payment of long-term debt
(542.3) (1,450.1)
(7.4)
Purchases of land, buildings,
Proceeds from common stock
and equipment
$ (613.9) $ (675.9) $ (648.8)
Acquisitions
(898.0) (1,050.1)
(123.3)
issued on exercised options
300.8
233.5
Tax benefit on exercised options
103.0
63.1
410.4
106.2
Investments in affiliates, net
(40.4)
(22.2)
(1.8)
Purchases of common
Proceeds from disposal of land,
buildings, and equipment
24.2
2.2
4.1
stock for treasury
(1,044.9)
(313.0)
(1,163.5)
Dividends paid
(867.6)
(800.1)
(729.4)
Proceeds from divestiture
of product lines
Exchangeable note
Other, net
Net cash used by
Distributions to noncontrolling
—
—
16.2
(131.6)
34.4
—
and redeemable interest holders
(39.2)
(5.2)
(4.3)
Other, net
(6.6)
(13.2)
(10.3)
(3.5)
6.8
20.3
Net cash used by
financing activities
$ (1,140.2) $ (666.6) $ (940.9)
investing activities
$ (1,515.4) $ (1,870.8) $ (715.1)
In fiscal 2013, cash used by investing activities
decreased by $355 million from fiscal 2012. In the second
quarter of fiscal 2013, we acquired Yoki, a privately held
food company headquartered in Sao Bernardo do Campo,
Brazil, for an aggregate purchase price of $940 million,
Net cash used by financing activities increased by
$474 million in fiscal 2013. In January 2013, we issued
$750 million aggregate principal amount of fixed rate
notes. The issuance consisted of $250 million 0.875
percent notes due January 29, 2016 and $500 million
4.15 percent notes due February 15, 2043. Interest on the
30
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Annual Report 2013
31
fixed-rate notes is payable semi-annually in arrears. The
fixed rate notes due January 29, 2016 may be redeemed
in whole, or in part, at our option at any time for a
specified make whole amount. The fixed rate notes due
February 15, 2043 may be redeemed in whole, or in part,
at our option at any time prior to August 15, 2042 for
a specified make whole amount and any time on or
after that date at par. These notes are senior unsecured
obligations that include a change of control repurchase
provision. The net proceeds were used to reduce our
commercial paper borrowings.
In January 2013, we issued $250 million floating rate
notes due January 29, 2016. The floating-rate notes bear
interest equal to three-month LIBOR plus 30 basis points,
subject to quarterly reset. Interest on the floating-rate
notes is payable quarterly in arrears. The floating rate
notes are not redeemable prior to maturity. These notes
are senior unsecured obligations that include a change
of control repurchase provision. The net proceeds were
used to reduce our commercial paper borrowings.
In September 2012, we repaid $521 million of 5.65
percent notes. In February 2012, we repaid $1.0 billion
of 6.0 percent notes. In November 2011, we issued $1.0
billion aggregate principal amount of 3.15 percent notes
due December 15, 2021. The net proceeds were used to
repay a portion of our notes due February 2012, reduce
our commercial paper borrowings, and for general
corporate purposes. Interest on these notes is payable
semi-annually in arrears. These notes may be redeemed
at our option at any time prior to September 15, 2021
for a specified make whole amount and any time on or
after that date at par. These notes are senior unsecured,
unsubordinated obligations that include a change of
control repurchase provision.
As part of our acquisition of Yoplait S.A.S. in fiscal
2012, we consolidated $458 million of primarily euro-
denominated Euribor-based floating-rate bank debt. In
December 2011, we refinanced this debt with $390 million
of euro-denominated Euribor-based floating-rate bank
debt due at various dates through December 15, 2014.
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.
During fiscal 2013, we had $301 million in proceeds from
common stock issued on exercised options compared to
$234 million in fiscal 2012, an increase of $67 million.
During fiscal 2011, we had $410 million in proceeds from
common stock issued on exercised options.
In June 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. During fiscal 2013, we paid $1,015
million to repurchase 24 million shares of our common
stock, including 6 million shares with a fair value of
$270 million purchased as part of an ASR agreement.
Under the terms of the ASR agreement, we also paid
an additional $30 million to the unrelated financial
institution for shares which will be settled in the first
quarter of fiscal 2014. During fiscal 2012, we repurchased
8 million shares of our common stock for an aggregate
purchase price of $313 million. During fiscal 2011, we
repurchased 32 million shares of our common stock for
an aggregate purchase price of $1,164 million.
Dividends paid in fiscal 2013 totaled $868 million, or
$1.32 per share, an 8 percent per share increase from
fiscal 2012. Dividends paid in fiscal 2012 totaled $800
million, or $1.22 per share, a 9 percent per share increase
from fiscal 2011 dividends of $1.12 per share. On March
12, 2013, our Board of Directors approved a dividend
increase, effective with the August 1, 2013 payment, to
an annual rate of $1.52 per share, a 15 percent increase
from the rate paid in fiscal 2013.
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31
Selected Cash Flows from Joint Ventures
Selected cash flows from our joint ventures are set
forth in the following table:
Inflow (Outflow), in Millions
2013
2012
2011
Advances to joint ventures, net
$ (36.7)
$ (22.2)
Dividends received
115.7
68.0
$ (1.8)
72.7
Fiscal Year
CAPITAL RESOURCES
Total capital consisted of the following:
In Millions
May 26, 2013 May 27, 2012
Notes payable
Current portion of long-term debt
$ 599.7 $ 526.5
741.2
1,443.3
Long-term debt
Total debt
Redeemable interest
Noncontrolling interests
Stockholders’ equity
Total capital
5,926.1
6,161.9
7,969.1
7,429.6
967.5
456.3
847.8
461.0
6,672.2
6,421.7
$16,065.1 $15,160.1
The following table details the fee-paid committed
and uncommitted credit lines we had available as of
May 26, 2013:
In Billions
Credit facility expiring:
April 2015
April 2017
Total committed credit facilities
Uncommitted credit facilities
Total committed and uncommitted credit facilities
Amount
$1.0
1.7
2.7
0.3
$3.0
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 have commercial
paper programs available to us in the United States
and Europe. Our commercial paper borrowings are
supported by $2.7 billion of fee-paid committed credit
lines, consisting of a $1.0 billion facility expiring in April
2015 and a $1.7 billion facility expiring in April 2017.
We also have $333 million in uncommitted credit lines
that support our foreign operations. As of May 26,
2013, there were no amounts outstanding on the fee-
paid committed credit lines and $84 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 times.
Certain of our long-term debt agreements, our credit
facilities, and our noncontrolling interests contain
restrictive covenants. As of May 26, 2013, we were in
compliance with all of these covenants.
We have $1,443 million of long-term debt maturing
in the next 12 months that is classified as current. We
believe that cash flows from operations, together with
available short- and long-term debt financing, will be
adequate to meet our liquidity and capital needs for at
least the next 12 months.
As of May 26, 2013, our total debt, including the
impact of derivative instruments designated as hedges,
was 73 percent in fixed-rate and 27 percent in floating-
rate instruments, compared to 71 percent in fixed-rate
and 29 percent in floating-rate instruments on May
27, 2012. The change in the fixed-rate and floating-rate
percentages was driven by the issuance of fixed rate
bonds in January 2013.
Growth in return on average total capital is one of
our key performance measures (see the “Non-GAAP
Measures” section on page 89 for our discussion of this
measure, which is not defined by GAAP). Return on
average total capital decreased from 12.7 percent in fiscal
2012 to 11.9 percent in fiscal 2013 primarily reflecting
the impact of acquisitions. We also believe that our fixed
charge coverage ratio and the ratio of operating cash flow
to debt are important measures of our financial strength.
Our fixed charge coverage ratio in fiscal 2013 was 7.62
compared to 6.26 in fiscal 2012. The measure increased
from fiscal 2012 as earnings before income taxes and
after-tax earnings from joint ventures increased by
$324 million and fixed charges decreased by $32 million,
driven primarily by lower interest. Our operating cash
flow to debt ratio increased 4.3 percentage points to 36.7
percent in fiscal 2013, driven by a higher rate of increase
in cash flows from operations than in total debt.
During the first quarter of fiscal 2012, we acquired
a 51 percent controlling interest in Yoplait S.A.S. and
a 50 percent interest in Yoplait Marques S.A.S. Sodiaal
holds the remaining interests in each of the entities. We
consolidated both entities into our consolidated financial
statements. At the date of the acquisition, we recorded
the $264 million fair value of Sodiaal’s 50 percent
interest in Yoplait Marques S.A.S. as a noncontrolling
interest, and the $904 million fair value of its 49 percent
interest in Yoplait S.A.S. as a redeemable interest on our
Consolidated Balance Sheets. These euro-denominated
interests are reported in U.S. dollars on our Consolidated
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33
Balance Sheets. Sodiaal has the ability to put a limited
portion of its redeemable interest to us at fair value once
per year up to a maximum of 9 years. As of May 26,
2013, the redemption value of the redeemable interest
was $968 million which approximates its fair value.
During the first quarter of fiscal 2013, in conjunction
with the consent of the Class A investor, we restructured
GMC through the distribution of its manufacturing
assets, stock, inventory, cash and certain intellectual
property to a wholly owned subsidiary. GMC retained
the remaining intellectual property. Immediately
following the restructuring, the Class A Interests of
GMC were sold by the then current holder to another
unrelated third-party investor.
The third-party holder of the GMC 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 110 basis points, to the holder’s
capital account balance established in the most recent
mark-to-market valuation (currently $252 million).
The preferred return rate is adjusted every three years
through a negotiated agreement with the Class A
Interest holder or through a remarketing auction.
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, GMC’s failure to deliver the preferred
distributions on the Class A Interests, GMC’s failure to
comply with portfolio requirements, breaches of certain
covenants, lowering of our senior debt rating below
either Baa3 by Moody’s or BBB- by Standard & Poor’s,
and a failed attempt to remarket the Class A Interests.
In the event of a liquidation of GMC, each member of
GMC will receive the amount of its then current capital
account balance. We may avoid liquidation by exercising
our 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
investor’s capital account from its original value will be
charged directly to retained earnings and will increase
or decrease the net earnings used to calculate EPS in
that period.
OFF-BALANCE SHEET ARRANGEMENTS AND
CONTRACTUAL OBLIGATIONS
As of May 26, 2013, we have issued guarantees and
comfort letters of $356 million for the debt and other
obligations of consolidated subsidiaries, and guarantees
and comfort letters of $259 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 $438 million as of
May 26, 2013.
As of May 26, 2013, we had invested in four variable
interest entities (VIEs). None of our VIEs are material
to our results of operations, financial condition, or
liquidity as of and for the year ended May 26, 2013.
We determined whether or not we were the primary
beneficiary (PB) of each VIE using a qualitative
assessment that considered the VIE’s purpose and
design, the involvement of each of the interest holders,
and the risks and benefits of the VIE. We are the PB
of three of the VIEs. We provided minimal financial or
other support to our VIEs during fiscal 2013, 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. The PPA may
ultimately require us to make additional contributions to
our domestic plans. We made $200 million of voluntary
contributions to our principal U.S. plans in each of fiscal
2013 and fiscal 2012. We do not expect to be required
to make any contributions in fiscal 2014. Actual fiscal
2014 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.
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33
The following table summarizes our future estimated
cash payments under existing contractual obligations,
including payments due by period:
In Millions
Total
2014
2015-16
2019 and
2017-18 Thereafter
Payments Due by Fiscal Year
Long-term debt (a)
$ 7,372.8 $1,442.0 $1,680.8 $1,100.0 $3,150.0
Accrued interest
91.2
91.2
—
—
—
Operating leases (b)
437.7
93.4
135.1
94.7
114.5
Capital leases
4.2
1.8
2.2
0.2
—
Purchase obligations (c) 2,582.3 2,215.8 167.6
107.0
91.9
Total contractual
obligations
10,488.2 3,844.2 1,985.7 1,301.9 3,356.4
Other long-term
obligations (d)
1,816.3
—
—
—
—
Total long-term
obligations
$12,304.5 $3,844.2 $1,985.7 $1,301.9 $3,356.4
(a) Amounts represent the expected cash payments of our long-term debt
and do not include $4 million for capital leases or $7 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 foreign exchange, equity, commodity, and grain
derivative contracts with a payable position to the counterparty
was $36 million as of May 26, 2013, 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
$19 million of benefits from our unfunded postemployment benefit plans
and $14 million of deferred compensation in fiscal 2014. We are unable to
reliably estimate the amount of these payments beyond fiscal 2014. As of
May 26, 2013, our total liability for uncertain tax positions and accrued
interest and penalties was $266 million.
SIGNIFICANT ACCOUNTING ESTIMATES
For a complete description of our significant accounting
policies, see Note 2 to the Consolidated Financial
Statements on page 50 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, redeemable
interest, 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 $635 million as of May 26, 2013, and $561
million as of May 27, 2012. 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
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35
undiscounted future cash flows from the operation
and disposition of the asset group are less than the
carrying amount of the asset group. Asset groups
have identifiable cash flows independent of other asset
groups. Measurement of an impairment loss would be
based on the excess of the carrying amount of the asset
or 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 2013 assessment as of November 26, 2012, 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.
Intangible assets that are deemed to have definite lives
are amortized on a straight-line basis, over their useful
lives, generally ranging from 4 to 30 years.
Our indefinite-lived intangible assets, mainly
intangible assets primarily associated with the Pillsbury,
Totino’s, Progresso, Green Giant, Yoplait, Old El Paso,
Yoki, 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 2013 assessment
of our brand intangibles as of November 26, 2012. 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 26, 2013, we had $13.1 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.
Redeemable Interest On July 1, 2011, we acquired
a 51 percent controlling interest in Yoplait S.A.S., a
consolidated entity. Sodiaal holds the remaining 49
percent interest in Yoplait S.A.S. Sodiaal has the ability
to put a limited portion of its redeemable interest to
us at fair value once per year up to a maximum of 9
years. This put option requires us to classify Sodiaal’s
interest as a redeemable interest outside of equity on
our Consolidated Balance Sheets for as long as the put
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35
is exercisable by Sodiaal. When the put is no longer
exercisable, the redeemable interest will be reclassified
to noncontrolling interests on our Consolidated Balance
Sheets. We adjust the value of the redeemable interest
through additional paid-in capital on our Consolidated
Balance Sheets quarterly to the redeemable interest’s
redemption value, which approximates its fair value.
During the third quarter of fiscal 2013, we adjusted
the redeemable interest’s redemption value based on a
discounted cash flow model. The significant assumptions
used to estimate the redemption value include projected
revenue growth and profitability from our long range
plan, capital spending, depreciation and taxes, foreign
currency rates, and a discount rate.
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 2013 volatility assumption
would increase the grant-date fair value of our fiscal
2013 option awards by 9 percent.
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
increase the grant date fair value by 22 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
2013
2012
2011
Estimated fair values of
stock options granted
$ 3.65
$ 5.88
$ 4.12
Assumptions:
Risk-free interest rate
1.6%
2.9%
2.9%
Expected term
Expected volatility
Dividend yield
9.0 years 8.5 years
8.5 years
17.3%
17.6%
18.5%
3.5%
3.3%
3.0%
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 flows will depend, in
part, on the volume of employee stock option exercises
during a particular year and the relationship between the
exercise-date market value of the underlying stock and
the original grant-date fair value previously determined
for financial reporting purposes.
Realized windfall tax benefits 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 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
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37
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. 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.
The IRS initiated its audit of our fiscal 2011 and fiscal
2012 tax years during fiscal 2013. Currently, several state
examinations are in progress.
During fiscal 2013, the IRS concluded its field
examination of our 2009 and 2010 tax years. The IRS has
proposed adjustments related to the timing for deducting
accrued bonus expenses. We believe our position is
supported by substantial technical authority and have
filed an appeal with the IRS Appeals Division. The audit
closure and related proposed adjustments did not have a
material impact on our current year results of operations
or financial position. If we are unsuccessful in defending
our position with respect to accrued bonuses, we will
incur a one-time cash tax payment of approximately
$80 million. As of May 26, 2013, we have effectively
settled all issues with the IRS for fiscal years 2008
and prior.
Also during fiscal 2013, the California Court of Appeal
issued an adverse decision concerning our state income
tax apportionment calculations. We had previously
recorded a $12 million increase in our total liabilities
for uncertain tax positions in fiscal 2011 following an
unfavorable decision by the Superior Court of the State
of California related to this matter. We expect to pay a
majority of the tax due related to this issue in fiscal 2014.
The Canadian Revenue Agency (CRA) reviewed our
Canadian income tax returns for fiscal years 2003 to
2005 and raised assessments for these years to which
we have objected. During fiscal 2013, the issue related
to our 2003 fiscal year was resolved with no adjustment.
The issue for fiscal years 2004 and 2005 is currently
under review by the U.S. and Canadian competent
authority divisions. The CRA initiated its audit of our
fiscal years 2008 through 2011 during fiscal year 2013.
The CRA audit for fiscal 2008 was closed with no
significant adjustments. The audit for fiscal years 2009
through 2011 is ongoing.
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 26, 2013, our total liability for uncertain tax
positions and accrued interest and penalties was $266
million. We expect to pay approximately $12 million related
to uncertain tax positions and 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 employees in the United
States, Canada, France, and the United Kingdom. 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 U.S.
plans in each of fiscal 2013 and fiscal 2012. We do not
expect to be required to make any contributions in fiscal
2014. 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. In fiscal 2012, we announced changes to
our U.S. defined benefit pension plans. All new salaried
employees hired on or after June 1, 2013 are eligible
for a new retirement program that does not include a
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defined benefit pension plan. Current salaried employees
remain in the existing defined benefit pension plan with
adjustments to benefits.
Other Postretirement Benefit Plans We also sponsor
plans that provide health care benefits to the majority
of our retirees in the United States, Canada, and Brazil.
The United States 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 2013. 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. We continue to evaluate
the effect of the Act, including its potential impact on
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.
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 plan and other postretirement benefit plan
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 plans, the long-term
investment policy allocation is: 25 percent to equities in
the United States; 15 percent to international equities; 10
percent to private equities; 35 percent to fixed income;
and 15 percent to real assets (real estate, energy, and
timber). For 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 16.5
percent, 4.5 percent, 9.5 percent, 7.9 percent, and 9.5
percent for the 1, 5, 10, 15, and 20 year periods ended
May 26, 2013.
On a weighted-average basis, the expected rate of
return for all defined benefit plans was 8.53 percent
for fiscal 2013, 9.52 percent for fiscal 2012, and 9.53
percent for fiscal 2011. During fiscal 2012, we lowered
our weighted-average expected rate of return on plan
assets for our principal defined benefit pension and other
postretirement plans in the United States to 8.6 percent
due to generally lower expectations for long-term rates
of return across our asset classes due to the recent global
economic slowdown and our expectation of an extended
time frame for recovery.
Lowering the expected long-term rate of return
on assets by 100 basis points would increase our net
pension and postretirement expense by $56 million for
fiscal 2014. 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
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39
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 outside actuaries to determine
the timing and amount of expected future cash outflows
to plan participants and, using the Aa Above Median
corporate bond yield, to develop a forward interest rate
curve, including a margin to that index based on our
credit risk. This forward interest rate curve is applied
to our expected future cash outflows to determine our
discount rate assumptions.
Our weighted-average discount rates were as follows:
Other
Defined
Benefit Postretirement Postemployment
Benefit
Benefit
Pension
Plans
Plans
Plans
Obligations as of
May 26, 2013, and
fiscal 2014 expense
4.54%
4.50%
3.70%
Obligations as of
May 27, 2012, and
fiscal 2013 expense
Fiscal 2012 expense
4.85%
5.45%
4.70%
5.35%
3.86%
4.77%
Lowering the discount rates by 100 basis points
would increase our net defined benefit pension, other
postretirement, and postemployment benefit plan
expense for fiscal 2014 by approximately $89 million.
All obligation-related experience gains and losses are
amortized using a straight-line method over the average
remaining service period of active plan participants.
Health Care Cost Trend Rates We review our health
care cost trend rates annually. Our review is based
on data we collect about our health care claims
experience and information provided by our actuaries.
This information includes recent plan experience, plan
design, overall industry experience and projections,
and assumptions used by other similar organizations.
Our initial health care cost trend rate is adjusted as
necessary to remain consistent with this review, recent
experiences, and short-term expectations. Our initial
health care cost trend rate assumption is 8.0 percent
for all retirees at the end of fiscal 2013. 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:
In Millions
One
One
Percentage Percentage
Point
Decrease
Point
Increase
Effect on the aggregate of the service and
interest cost components in fiscal 2014
$ 5.2
$ (4.4)
Effect on the other postretirement
accumulated benefit obligation as of
May 26, 2013
93.8
(82.9)
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 2013, we recorded
net defined benefit pension, other postretirement, and
postemployment benefit plan expense of $159 million
compared to $106 million of expense in fiscal 2012
and $95 million of expense in fiscal 2011. As of May
26, 2013, we had cumulative unrecognized actuarial
net losses of $1.6 billion on our defined benefit pension
plans and $176 million on our postretirement and
postemployment benefit plans, mainly as the result of
liability increases from lower interest rates, partially
offset by recent increases in the values of plan assets.
These unrecognized actuarial net losses will result in
increases in our future pension expense and increases in
postretirement expense since they currently exceed the
corridors defined by GAAP.
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We use the 2013 IRS Static 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 (collectively, the Act), 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 Act’s provisions
are incorporated into our postretirement benefit liability.
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 December 2011, the Financial Accounting Standards
Board (FASB) issued new accounting disclosure
requirements about the nature and exposure of offsetting
arrangements related to financial and derivative
instruments. The requirements are effective for fiscal
years beginning after January 1, 2013, which for us is
the first quarter of fiscal 2014. The requirements will not
impact our results of operations or financial position.
In February 2013, the FASB issued new disclosure
requirements for items reclassified out of accumulated
other comprehensive income (AOCI). The requirements
do not change the existing accounting and reporting for
net income or other comprehensive income (OCI). The
requirements are effective for annual reporting periods
beginning after December 15, 2012, and interim periods
within those annual periods, which for us is the first
quarter of fiscal 2014. The requirements will not impact
our results of operations or financial position.
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 demand for our
products; effectiveness of advertising, marketing, and
promotional programs; changes in consumer behavior,
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41
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 or breach of our information technology systems;
foreign economic conditions, including currency rate
fluctuations; and political unrest in foreign markets and
economic uncertainty due to terrorism or war.
You should also consider the risk factors that we
identify in Item 1A of our 2013 Form 10-K, which could
also affect our future results.
We undertake no obligation to publicly revise any
forward-looking statements to reflect events or
circumstances after the date of those statements or to
reflect the occurrence of anticipated or unanticipated
events.
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Quantitative and Qualitative
Disclosures About Market Risk
We are exposed to market risk stemming from changes
in interest and foreign exchange rates and commodity
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, Euribor, and commercial
paper rates in the United States and Europe. We use
interest rate swaps, forward-starting interest rate swaps,
and treasury locks 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 26, 2013, we had interest rate swaps with
$550 million of aggregate notional principal amount
outstanding, all of which converts fixed-rate notes
to floating-rate notes. In advance of a planned debt
refinancing, we had $250 million net notional amount of
treasury locks as of May 26, 2013.
FOREIGN EXCHANGE RISK
Foreign currency fluctuations affect our net investments
in foreign subsidiaries and foreign currency cash
flows related to third party purchases, intercompany
loans, product shipments, and foreign-denominated
commercial paper. We are also exposed to the
translation of foreign currency earnings to the U.S.
dollar. Our principal exposures are to the Australian
dollar, Brazilian real, British pound sterling, Canadian
dollar, Chinese renminbi, euro, Japanese yen, Mexican
peso, and Swiss franc. 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 of the entity
with foreign exchange exposure; 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 26, 2013, 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 26, 2013, the net notional value of
commodity derivatives was $526 million, of which $297
million related to agricultural inputs and $229 million
related to energy inputs. These contracts relate to inputs
that generally will be utilized within the next 12 months.
EQUITY INSTRUMENTS
Equity price movements affect our compensation expense
as certain investments made by our employees in our
deferred compensation plan are revalued. We use equity
swaps to manage this risk. As of May 26, 2013, the net
notional amount of our equity swaps was $57 million.
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VALUE AT RISK
The estimates in the table below are intended to measure
the maximum potential fair value we could lose in one
day from adverse changes in market interest rates,
foreign exchange rates, commodity prices, and equity
prices under normal market conditions. A Monte Carlo
value-at-risk (VAR) methodology was used to quantify
the market risk for our exposures. The models assumed
normal market conditions and used a 95 percent
confidence level.
The VAR calculation used historical interest rates,
foreign exchange rates, and commodity and equity
prices from the past year to estimate the potential
volatility and correlation of these rates in the future.
The market data were drawn from the RiskMetrics™
data set. The calculations are not intended to represent
actual losses in fair value that we expect to incur.
Further, since the hedging instrument (the derivative)
inversely correlates with the underlying exposure, we
would expect that any loss or gain in the fair value of
our derivatives would be generally offset by an increase
or decrease in the fair value of the underlying exposure.
The positions included in the calculations were: debt;
investments; interest rate swaps; foreign exchange
forwards; commodity swaps, futures and options; and
equity instruments. The calculations do not include the
underlying foreign exchange and commodities or equity-
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 26, 2013, and May 27, 2012, and the average fair
value impact during the year ended May 26, 2013.
In Millions
Fair Value Impact
May 26,
2013
Average
During
Fiscal 2013
May 27,
2012
Interest rate instruments
$21.5
$25.0
$29.4
Foreign currency instruments
Commodity instruments
Equity instruments
3.5
5.4
0.7
4.6
4.3
0.7
7.1
3.8
1.1
42
Healthy Growth
Annual Report 2013
43
Reports of Management and Independent Registered Public Accounting Firm
REPORT OF MANAGEMENT RESPONSIBILITIES
REPORT OF INd EPENdENT R EGISTEREd PuBLIc
AccOuNTING FIRM
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 management’s
best estimates and judgments where appropriate. The
financial information throughout the 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 management’s 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
Company’s 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 Company’s
independent registered public accounting firm for fiscal
2014, subject to ratification by the stockholders at the
annual meeting.
K. J. Powell
Chairman of the Board
and Chief Executive Officer
D. L. Mulligan
Executive Vice President
and Chief Financial
Officer
July 3, 2013
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 26, 2013 and May 27, 2012, and the related
consolidated statements of earnings, comprehensive
income, total equity and redeemable interest, and cash
flows for each of the fiscal years in the three-year
period ended May 26, 2013. 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 26,
2013, based on criteria established in Internal Control –
Integrated Framework (1992) 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 Management’s 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 Company’s 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
44
Healthy Growth
Annual Report 2013
PB
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 company’s 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 company’s 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
company’s 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 subsidiar-
ies as of May 26, 2013 and May 27, 2012, and the results
of their operations and their cash flows for each of the
fiscal years in the three-year period ended May 26, 2013,
in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the accompanying finan-
cial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the infor-
mation set forth therein. Also in our opinion, General
Mills, Inc. maintained, in all material respects, effective
internal control over financial reporting as of May 26,
2013, based on criteria established in Internal Control –
Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Minneapolis, Minnesota
July 3, 2013
Annual Report 2013
45
Consolidated Statements of Earnings
GENERAL MILLS, INC. AND SUBSIDIARIES
In Millions, Except per Share Data
Net sales
Cost of sales
Selling, general, and administrative expenses
Divestitures (gain)
Restructuring, impairment, and other exit costs
Operating profit
Interest, net
Earnings before income taxes and after-tax earnings from joint ventures
Income taxes
After-tax earnings from joint ventures
Fiscal Year
2013
2012
2011
$ 17,774.1
$ 16,657.9
$ 14,880.2
11,350.2
10,613.2
3,552.3
3,380.7
—
19.8
2,851.8
316.9
2,534.9
741.2
98.8
—
101.6
2,562.4
351.9
2,210.5
709.6
88.2
8,926.7
3,192.0
(17.4)
4.4
2,774.5
346.3
2,428.2
721.1
96.4
Net earnings, including earnings attributable to redeemable and noncontrolling interests
1,892.5
1,589.1
1,803.5
Net earnings attributable to redeemable and noncontrolling interests
Net earnings attributable to General Mills
Earnings per share - basic
Earnings per share - diluted
Dividends per share
See accompanying notes to consolidated financial statements.
37.3
21.8
5.2
$ 1,855.2
$ 1,567.3
$ 1,798.3
$
$
$
2.86
2.79
1.32
$
$
$
2.42
$
2.35
1.22
$
$
2.80
2.70
1.12
46
46
Healthy Growth
Healthy Growth
Consolidated Statements of Comprehensive Income
GENERAL MILLS, INC. AND SUBSIDIARIES
In Millions
Net earnings, including earnings attributable to
redeemable and noncontrolling interests
Other comprehensive income (loss), net of tax:
Foreign currency translation
Net actuarial gain (loss)
Other fair value changes:
Securities
Hedge derivatives
Reclassification to earnings:
Hedge derivatives
Amortization of losses and prior service costs
Other comprehensive income (loss), net of tax
Total comprehensive income
Comprehensive income (loss) attributable to redeemable
and noncontrolling interests
Comprehensive income attributable to General Mills
See accompanying notes to consolidated financial statements.
Fiscal Year
2013
2012
2011
$ 1,892.5
$ 1,589.1 $ 1,803.5
0.8
45.0
0.8
24.6
12.2
98.8
182.2
(420.1)
(504.6)
(0.2)
(53.4)
11.5
81.7
(885.1)
359.0
61.1
(3.6)
(25.4)
18.5
67.2
476.8
2,074.7
704.0
2,280.3
61.1
(130.4)
5.9
$ 2,013.6
$
834.4 $ 2,274.4
Annual Report 2013
47
Consolidated Balance Sheets
GENERAL MILLS, INC. AND SUBSIDIARIES
In Millions, Except Par Value
ASSETS
Current assets:
Cash and cash equivalents
Receivables
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Land, buildings, and equipment
Goodwill
Other intangible assets
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Current portion of long-term debt
Notes payable
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Other liabilities
Total liabilities
Redeemable interest
Stockholders’ equity:
Common stock, 754.6 shares issued, $0.10 par value
Additional paid-in capital
Retained earnings
Common stock in treasury, at cost, shares of 113.8 and 106.1
Accumulated other comprehensive loss
Total stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
May 26, 2013 May 27,2012
$ 741.4 $
471.2
1,446.4
1,323.6
1,545.5
1,478.8
128.0
437.6
59.7
358.1
4,298.9
3,691.4
3,878.1
3,652.7
8,622.2
8,182.5
5,015.1
4,704.9
843.7
865.3
$ 22,658.0 $ 21,096.8
$ 1,423.2 $ 1,148.9
1,443.3
599.7
741.2
526.5
1,827.7
1,426.6
5,293.9
3,843.2
5,926.1
6,161.9
1,389.1
1,171.4
1,952.9
2,189.8
14,562.0
13,366.3
967.5
847.8
75.5
75.5
1,166.6
1,308.4
10,702.6
9,958.5
(3,687.2)
(1,585.3)
(3,177.0)
(1,743.7)
6,672.2
6,421.7
456.3
461.0
7,128.5
6,882.7
$ 22,658.0 $ 21,096.8
48
48
Healthy Growth
Healthy Growth
Consolidated Statements of Total Equity and Redeemable Interest
GENERAL MILLS, INC. AND SUBSIDIARIES
$.10 Par Value Common Stock
(One Billion Shares Authorized)
Issued
Treasury
Par
Shares Amount
Additional
Paid-In
Capital
Shares
Amount
Accumulated
Other
Retained Comprehensive Noncontrolling
Interests
Earnings
Income (Loss)
Total Redeemable
Interest
Equity
754.6
$75.5 $1,307.1
(98.1) $(2,615.2) $8,122.4
$(1,486.9)
$245.1 $5,648.0
1,798.3
476.1
5.9 2,280.3
(31.8)
(1,163.5)
(729.4)
(22.2)
20.1
568.4
(70.4)
105.3
(729.4)
(1,163.5)
546.2
(70.4)
105.3
(4.3)
(4.3)
754.6
$75.5 $1,319.8
(109.8) $(3,210.3) $9,191.3
$(1,010.8)
$246.7 $6,612.2
1,567.3
(732.9)
(44.3)
790.1
(86.1)
(8.3)
(313.0)
(800.1)
3.2
12.0
346.3
(93.4)
108.3
(29.5)
(800.1)
(313.0)
349.5
(93.4)
108.3
263.8
263.8
904.4
(29.5)
29.5
(5.2)
(5.2)
754.6
$75.5 $1,308.4
(106.1) $(3,177.0) $9,958.5
$(1,743.7)
$461.0 $6,882.7
$847.8
1,855.2
158.4
18.3 2,031.9
42.8
(1,111.1)
(30.0)
(24.2)
(1,014.9)
(38.6)
16.5
504.7
(80.5)
100.4
(93.1)
(1,111.1)
(1,044.9)
466.1
(80.5)
100.4
(93.1)
93.1
(23.0)
(23.0)
(16.2)
In Millions, Except per Share Data
Balance as of May 30, 2010
Total comprehensive income
Cash dividends declared
($1.12 per share)
Shares purchased
Stock compensation plans (includes
income tax benefits of $106.2)
Unearned compensation related
to restricted stock unit awards
Earned compensation
Distributions to noncontrolling
interest holders
Balance as of May 29, 2011
Total comprehensive
income (loss)
Cash dividends declared
($1.22 per share)
Shares purchased
Stock compensation plans (includes
income tax benefits of $63.1)
Unearned compensation related
to restricted stock unit awards
Earned compensation
Addition of redeemable and
noncontrolling interest from
acquisitions
Increase in redemption
value of redeemable
interest
Distributions to noncontrolling
interest holders
Balance as of May 27, 2012
Total comprehensive
income
Cash dividends declared
($1.70 per share)
Shares purchased
Stock compensation plans (includes
income tax benefits of $103.0)
Unearned compensation related
to restricted stock unit awards
Earned compensation
Increase in redemption
value of redeemable
interest
Distributions to redeemable and
noncontrolling interest holders
Balance as of May 26, 2013
754.6
$75.5 $1,166.6
(113.8) $(3,687.2) $10,702.6
$(1,585.3)
$456.3 $7,128.5
$967.5
See accompanying notes to consolidated financial statements.
Annual Report 2013
49
Consolidated Statements of Cash Flows
GENERAL MILLS, INC. AND SUBSIDIARIES
In Millions
Cash Flows - Operating Activities
Net earnings, including earnings attributable to redeemable and noncontrolling interests
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
After-tax earnings from joint ventures
Distributions of earnings from joint ventures
Stock-based compensation
Deferred income taxes
Tax benefit on exercised options
Pension and other postretirement benefit plan contributions
Pension and other postretirement benefit plan costs
Divestitures (gain)
Restructuring, impairment, and other exit costs
Changes in current assets and liabilities, excluding the effects of acquisitions
Other, net
Net cash provided by operating activities
Cash Flows - Investing Activities
Purchases of land, buildings, and equipment
Acquisitions, net of cash acquired
Investments in affiliates, net
Proceeds from disposal of land, buildings, and equipment
Proceeds from divestiture of product lines
Exchangeable note
Other, net
Net cash used by investing activities
Cash Flows - Financing Activities
Change in notes payable
Issuance of long-term debt
Payment of long-term debt
Proceeds from common stock issued on exercised options
Tax benefit on exercised options
Purchases of common stock for treasury
Dividends paid
Distributions to noncontrolling and redeemable interest holders
Other, net
Net cash used by financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents - beginning of year
Cash and cash equivalents - end of year
Cash Flow from Changes in Current Assets and Liabilities, excluding the effects of acquisitions:
Receivables
Inventories
Prepaid expenses and other current assets
Accounts payable
Other current liabilities
Changes in current assets and liabilities
See accompanying notes to consolidated financial statements.
Fiscal Year
2013
2012
2011
$ 1,892.5
$ 1,589.1
$ 1,803.5
588.0
(98.8)
115.7
100.4
81.8
(103.0)
(223.2)
131.2
—
(60.2)
471.1
30.5
2,926.0
(613.9)
(898.0)
(40.4)
24.2
—
16.2
(3.5)
(1,515.4)
(44.5)
1,001.1
(542.3)
300.8
103.0
(1,044.9)
(867.6)
(39.2)
(6.6)
(1,140.2)
(0.2)
270.2
471.2
$ 741.4
$
(44.6)
18.7
(64.3)
263.6
297.7
$ 471.1
541.5
(88.2)
68.0
108.3
149.4
(63.1)
(222.2)
77.8
—
97.8
243.8
(95.0)
2,407.2
(675.9)
(1,050.1)
(22.2)
2.2
—
(131.6)
6.8
(1,870.8)
227.9
1,390.5
(1,450.1)
233.5
63.1
(313.0)
(800.1)
(5.2)
(13.2)
(666.6)
(18.2)
(148.4)
619.6
$ 471.2
$ (24.2)
144.5
149.4
12.1
(38.0)
$ 243.8
472.6
(96.4)
72.7
105.3
205.3
(106.2)
(220.8)
73.6
(17.4)
(1.3)
(720.9)
(38.9)
1,531.1
(648.8)
(123.3)
(1.8)
4.1
34.4
—
20.3
(715.1)
(742.6)
1,200.0
(7.4)
410.4
106.2
(1,163.5)
(729.4)
(4.3)
(10.3)
(940.9)
71.3
(53.6)
673.2
$ 619.6
$ (69.8)
(240.0)
(96.0)
109.0
(424.1)
$ (720.9)
50
Healthy Growth
Notes to Consolidated Financial Statements
GENERAL MILLS, INC. AND SUBSIDIARIES
NOTE 1. BASIS OF PRESENTATION AND
RECLASSIFICATIONS
Basis of Presentation Our Consolidated Financial
Statements include the accounts of General Mills,
Inc. and all subsidiaries in which we have a control-
ling financial interest. Intercompany transactions and
accounts, including any noncontrolling and redeemable
interests’ share of those transactions, are eliminated in
consolidation.
Our fiscal year ends on the last Sunday in May. Fiscal
years 2013, 2012 and 2011 each consisted of 52 weeks.
Change in Reporting Period As part of a long-term plan
to conform the fiscal year ends of all our operations, we
have changed the reporting period of certain countries
within our International segment from an April fiscal
year end to a May fiscal year end to match our fiscal
calendar. Accordingly, in the year of change, our results
include 13 months of results from the affected opera-
tions compared to 12 months in previous fiscal years.
We changed the reporting period for our operations in
Europe and Australia in fiscal 2013, and we changed
the reporting period for our operations in China in fis-
cal 2012. The impact of these changes was not material
to our consolidated results of operations and, therefore,
we did not restate prior period financial statements for
comparability. Our Yoplait S.A.S., Yoplait Marques S.A.S.,
Yoki Alimentos S.A. (Yoki), and India businesses remain
on an April fiscal year end.
Certain reclassifications to our previously reported
financial information have been made to conform to the
current period presentation.
NOTE 2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Cash and Cash Equivalents We consider all invest-
ments purchased with an original maturity of three
months or less to be cash equivalents.
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 generally
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 engineer-
ing 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 dis-
posal. When an item is sold or 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 26, 2013, assets held for sale were
insignificant.
Long-lived assets are reviewed for impairment when-
ever 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 recog-
nized 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 car-
rying amount of the asset group over its fair value. Fair
value is measured using a discounted cash flow model or
independent appraisals, as appropriate.
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
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
Annual Report 2013
51
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 2013 assessment as of November 26, 2012, 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 regard-
ing the future effects of obsolescence, demand, compe-
tition, other economic factors (such as the stability of
the industry, known technological advances, legislative
action that results in an uncertain or changing regula-
tory environment, and expected changes in distribution
channels), the level of required maintenance expendi-
tures, and the expected lives of other related groups of
assets. Intangible assets that are deemed to have definite
lives are amortized on a straight-line basis, over their
useful lives, generally ranging from 4 to 30 years.
Our indefinite-lived intangible assets, mainly intan-
gible assets primarily associated with the Pillsbury,
Totino’s, Progresso, Green Giant, Yoplait, Old El Paso,
Yoki, 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 2013 assess-
ment of our brand intangibles as of November 26, 2012.
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 val-
ues were substantially in excess of the carrying values.
Our finite-lived intangible assets, primarily acquired
franchise agreements and customer relationships, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment loss would
be recognized when estimated undiscounted future cash
flows from the operation and disposition of the asset
are less than the carrying amount of the asset. Assets
generally have identifiable cash flows and are largely
independent of other assets. Measurement of an impair-
ment loss would be based on the excess of the carry-
ing amount of the asset over its fair value. Fair value is
measured using a discounted cash flow model or other
similar valuation model, as appropriate.
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 roy-
alty income from certain joint ventures, incur various
expenses (primarily research and development), and
record the tax impact of certain joint venture opera-
tions 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 materi-
als, 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.
Redeemable Interest On July 1, 2011, we acquired
a 51 percent controlling interest in Yoplait S.A.S., a
consolidated entity. Sodiaal International (Sodiaal) holds
52
Healthy Growth
the remaining 49 percent interest in Yoplait S.A.S.
Sodiaal has the ability to put a limited portion of its
redeemable interest to us at fair value once per year up
to a maximum of 9 years. This put option requires us
to classify Sodiaal’s interest as a redeemable interest
outside of equity on our Consolidated Balance Sheets
for as long as the put is exercisable by Sodiaal. When
the put is no longer exercisable, the redeemable interest
will be reclassified to noncontrolling interests on our
Consolidated Balance Sheets. We adjust the value of
the redeemable interest through additional paid-in
capital on our Consolidated Balance Sheets quarterly
to the redeemable interest’s redemption value, which
approximates its fair value. During the third quarter
of fiscal 2013, we adjusted the redeemable interest’s
redemption value based on a discounted cash flow
model. The significant assumptions used to estimate the
redemption value include projected revenue growth and
profitability from our long range plan, capital spending,
depreciation and taxes, foreign currency rates, and a
discount rate.
Variable Interest Entities As of May 26, 2013, we had
invested in four variable interest entities (VIEs). None of
our VIEs are material to our results of operations, finan-
cial condition, or liquidity as of and for the year ended
May 26, 2013. We determined whether or not we were
the primary beneficiary (PB) of each VIE using a qualita-
tive assessment that considered the VIE’s purpose and
design, the involvement of each of the interest holders,
and the risks and benefits of the VIE. We are the PB
of three of the VIEs. We provided minimal financial or
other support to our VIEs during fiscal 2013, and there
are no arrangements related to VIEs that would require
us to provide significant financial support in the future.
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 exist-
ing 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 com-
pletion of feasibility studies or our commitment to a
plan of action.
Advertising Production Costs We expense the produc-
tion costs of advertising the first time that the advertis-
ing 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 facili-
ties, including assets at facilities that are engaged in pilot
plant activities.
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
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.
Annual Report 2013
53
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
a Black-Scholes valuation model. Stock compensation is
recognized straight line over the vesting period. Our stock
compensation expense is recorded in selling, general and
administrative (SG&A) expenses 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 pro-
visions that accelerate vesting of awards upon retire-
ment, termination or death of eligible employees and
directors. We consider a stock-based award to be vested
when the employee’s 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 retire-
ment eligibility is achieved, if less than the stated vest-
ing period.
We report the benefits of tax deductions in excess
of recognized compensation cost as a financing cash
flow, thereby reducing net operating cash flows and
increasing net financing cash flows.
Defined Benefit Pension, Other Postretirement, and
Postemployment Benefit Plans We sponsor several
domestic and foreign defined benefit plans to provide
pension, health care, and other welfare benefits to retired
employees. Under certain circumstances, we also provide
accruable benefits to former or inactive employees in the
United States and Canada and members of our Board of
Directors, including severance and certain other benefits
payable upon death. We recognize an obligation for any
of these benefits that vest or accumulate with service.
Postemployment benefits that do not vest or accumulate
with service (such as severance based solely on 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 contin-
gent 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, redeem-
able interest, 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 2013, we
adopted 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 compo-
nents of net income or OCI, when OCI should be reclas-
sified to net income, or the earnings per share (EPS)
calculation. This guidance did not have an impact our
results of operations or financial position.
In fiscal 2013, we adopted new accounting guidance
intended to simplify indefinite-lived intangible asset
impairment testing. Entities are allowed to perform a
qualitative assessment of indefinite-lived intangible
asset impairment to determine whether a quantitative
assessment is necessary. We adopted this guidance for
our annual indefinite-lived intangible asset impairment
test for fiscal 2013, which was conducted as of the first
day of the third quarter. The adoption of this guidance
did not have an impact on our results of operations or
financial position.
54
Healthy Growth
In fiscal 2012, we adopted new accounting guidance
for fair value measurements providing common fair
value measurement and disclosure requirements. The
adoption of the guidance did not have an impact on our
results of operations or financial condition.
In fiscal 2012, we adopted new accounting guidance
on employer’s disclosures about participation in multi-
employer benefit plans. The adoption of the guidance
did not have an impact on our results of operations or
financial condition.
In fiscal 2012, we adopted new accounting guid-
ance intended to simplify goodwill impairment testing.
Entities are allowed to perform a qualitative assessment
of goodwill impairment to determine whether a quan-
titative assessment is necessary. We adopted this guid-
ance for our annual goodwill impairment test for fiscal
2012. The adoption of this guidance did not have an
impact on our results of operations or financial position.
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 com-
pany (1) has the power to direct matters that most sig-
nificantly impact the VIE’s 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.
NOTE 3. ACQUISITIONS
On August 1, 2012, we acquired Yoki, a privately
held food company headquartered in Sao Bernardo
do Campo, Brazil, for an aggregate purchase price of
$939.8 million, including $88.8 million of non-cash
consideration for net debt assumed. Yoki operates in
several food categories, including snacks, convenient
meals, basic foods, and seasonings. We consolidated
Yoki into our Consolidated Balance Sheets and recorded
goodwill of $363.0 million. Indefinite lived intangible
assets acquired include brands of $253.0 million.
Finite lived intangible assets acquired primarily include
customer relationships of $17.5 million. The pro forma
effects of this acquisition were not material.
During the first quarter of fiscal 2012, we acquired
a 51 percent controlling interest in Yoplait S.A.S. and
a 50 percent interest in Yoplait Marques S.A.S. from
PAI Partners and Sodiaal for an aggregate purchase
price of $1.2 billion, including $261.3 million of non-
cash consideration for debt assumed. We consolidated
both entities into our Consolidated Balance Sheets
and recorded goodwill of $1.5 billion. Indefinite lived
intangible assets acquired primarily include brands of
$476.0 million. Finite lived intangible assets acquired
primarily include franchise agreements of $440.2 million
and customer relationships of $107.3 million. In addition,
we purchased a zero coupon exchangeable note due in
2016 from Sodiaal with a notional amount of $131.6
million and a fair value of $110.9 million. As of May 26,
2013, $16.2 million of the exchangeable note has been
repaid. The pro forma effects of this acquisition were not
material.
NOTE 4. RESTRUCTURING, IMPAIRMENT, AND OTHER
EXIT COSTS
We view our restructuring activities as actions that help
us 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 sav-
ings 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 con-
text 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 2013, we recorded restructuring, impairment,
and other exit costs pursuant to approved plans as follows:
Expense, in Millions
Charges associated with restructuring actions
previously announced
Total
$19.8
$19.8
In fiscal 2013, we recorded an $18.6 million
restructuring charge related to a productivity and cost
savings plan approved in the fourth quarter of fiscal 2012,
consisting of $10.6 million of employee severance expense
and other exit costs of $8.0 million. All of our operating
segments were affected by these actions including $15.9
million related to our International segment, $1.8 million
Annual Report 2013
55
related to our U.S. Retail segment, and $0.9 million
related to our Bakeries and Foodservice segment. These
restructuring actions are expected to be completed by
the end of fiscal 2014. In addition, we recorded $1.2
million of charges associated with other previously
announced restructuring actions. In fiscal 2013, we paid
$79.9 million in cash related to restructuring actions.
In fiscal 2012, we recorded restructuring, impairment,
and other exit costs pursuant to approved plans as
follows:
Expense, in Millions
Productivity and cost savings plan
$100.6
Charges associated with restructuring actions
In fiscal 2011, we recorded restructuring, impairment,
and other exit costs pursuant to approved plans as
follows:
Expense, in Millions
Discontinuation of fruit-flavored snack product line
$1.7
Charges associated with restructuring actions
previously announced
Total
2.7
$4.4
The roll forward of our restructuring and other exit
cost reserves, included in other current liabilities, is as
follows:
Contract
Termination
Other
Exit
Costs
Total
previously announced
Total
1.0
In Millions
Severance
$101.6
Reserve balance as of
In fiscal 2012, we recorded a $100.6 million restructuring
charge related to a productivity and cost savings plan
approved in the fourth quarter of fiscal 2012. The plan was
designed to improve organizational effectiveness and focus
on key growth strategies, and included organizational
changes to strengthen business alignment and actions
to accelerate administrative efficiencies across all of our
operating segments and support functions. In connection
with this initiative, we eliminated approximately 850
positions globally. The restructuring charge consisted of
$87.6 million of employee severance expense and a non-
cash charge of $13.0 million related to the write-off of
certain long-lived assets in our U.S. Retail segment. All
of our operating segments and support functions were
affected by these actions including $69.9 million related
to our U.S. Retail segment, $12.2 million related to our
Bakeries and Foodservice segment, $9.5 million related
to our International segment, and $9.0 million related to
our administrative functions. In fiscal 2012, we paid $3.8
million in cash related to restructuring actions taken in
fiscal 2012 and previous years.
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
2012 charges, including
foreign currency translation 82.4
—
—
82.4
Utilized in 2012
(1.0)
(2.8)
0.1 (3.7)
Reserve balance as of
May 27, 2012
83.1
2.7
0.1 85.9
2013 charges, including
foreign currency translation 10.6
—
—
10.6
Utilized in 2013
(74.2)
(2.7)
(0.1) (77.0)
Reserve balance as of
May 26, 2013
$ 19.5
$ — $ — $ 19.5
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.
56
Healthy Growth
NOTE 5. INVESTMENTS IN JOINT VENTURES
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
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 CPW’s 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.
Joint venture related balance sheet activity follows:
The components of goodwill and other intangible assets
are as follows:
May 26,
2013
May 27,
2012
$ 8,622.2
$8,182.5
In Millions
Goodwill
Other intangible assets:
Intangible assets not subject
to amortization:
Brands and other
indefinite-lived intangibles
4,499.5
4,217.1
Intangible assets subject to amortization:
Franchise agreements, customer
relationships, and other
finite-lived intangibles
Less accumulated amortization
602.6
(87.0)
Intangible assets subject to amortization
515.6
544.7
(56.9)
487.8
Other intangible assets
5,015.1
4,704.9
$13,637.3 $12,887.4
In Millions
Cumulative investments
Goodwill and other intangibles
Aggregate advances
May 26,
2013
May 27,
2012
Total
$ 478.5
$ 529.0
537.2
291.5
522.1
268.1
Based on the carrying value of finite-lived intangible
assets as of May 26, 2013, amortization expense for
each of the next five fiscal years is estimated to be
approximately $30 million.
Joint venture earnings and cash flow activity follows:
Fiscal Year
In Millions
2013
2012
2011
Sales to joint ventures
Net advances
Dividends received
$12.3
36.7
115.7
$10.4
$10.2
22.2
68.0
1.8
72.7
Summary combined financial information for the joint
ventures on a 100 percent basis follows:
In Millions
Net sales:
CPW
HDJ
Total net sales
Gross margin
Fiscal Year
2013
2012
2011
$2,132.2 $2,152.6 $2,067.2
420.5
428.9
385.0
2,552.7
2,581.5 2,452.2
1,057.3
1,084.1 1,073.6
Earnings before income taxes
Earnings after income taxes
260.3
201.6
250.3
233.4
189.0
164.2
In Millions
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
May 26,
2013
May 27,
2012
$ 976.7
$ 934.8
1,088.2
1,717.4
115.1
1,078.0
1,671.0
91.0
Annual Report 2013
57
The changes in the carrying amount of goodwill for
fiscal 2011, 2012, and 2013 are as follows:
The changes in the carrying amount of other
intangible assets for fiscal 2011, 2012, and 2013 are as
follows:
Total
In Millions
U.S.
Retail
International
Joint
Ventures
Total
U.S.
Joint
Retail International Foodservice Ventures
Bakeries
and
In Millions
Balance as of
May 30, 2010 $5,098.3 $ 122.0 $923.0 $449.5 $6,592.8
Acquisitions
Divestitures
Other activity,
primarily foreign
44.6
—
26.9
(0.5)
—
(1.9)
—
—
71.5
(2.4)
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
Acquisitions
670.3
946.4
—
— 1,616.7
Other activity,
primarily foreign
currency translation
—
(119.1)
—
(65.9)
(185.0)
Balance as of
May 27, 2012
5,813.2
989.9
921.1 458.3 8,182.5
Acquisitions
Other activity,
primarily foreign
28.2
378.8
—
—
407.0
currency translation
—
18.3
—
14.4
32.7
Balance as of
May 26, 2013 $5,841.4 $1,387.0 $921.1 $472.7 $8,622.2
Balance as of
May 30, 2010
$3,206.6
$ 445.3
$63.1 $3,715.0
Acquisitions
Other activity,
primarily foreign
39.3
6.0
—
45.3
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
Acquisitions
Other activity,
primarily foreign
58.2
1,050.3
— 1,108.5
currency translation
(3.7)
(204.1)
(9.1)
(216.9)
Balance as of
May 27, 2012
3,297.0
1,344.1
63.8 4,704.9
Acquisitions
Other activity,
primarily foreign
20.0
290.7
—
310.7
currency translation
(4.6)
3.4
0.7
(0.5)
Balance as of
May 26, 2013
$3,312.4
$1,638.2
$64.5 $5,015.1
58
Healthy Growth
NOTE 7. FINANCIAL INSTRUMENTS, RISK
MANAGEMENT ACTIVITIES, AND FAIR VALUES
instruments. Long-term debt is a Level 2 liability in the
fair value hierarchy.
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 26, 2013,
and May 27, 2012, a comparison of cost and market
values of our marketable debt and equity securities is as
follows:
Cost
Market
Value
Gross
Gains
Gross
Losses
Fiscal Year
Fiscal Year
Fiscal Year Fiscal Year
In Millions
2013 2012 2013 2012 2013 2012 2013 2012
Available for sale:
Debt securities $134.0 $52.2 $134.1 $52.3 $0.1 $0.1 $ — $ —
Equity securities
1.8 1.8 6.4 5.3 4.6 3.5 — —
Total
$135.8 $54.0 $140.5 $57.6 $4.7 $3.6 $ — $ —
Earnings include less than $1 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 security’s 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:
In Millions
Available for Sale
Cost
Market
Value
Under 1 year (current)
$ 130.2
$ 130.2
From 1 to 3 years
From 4 to 7 years
Equity securities
Total
2.2
1.6
1.8
2.3
1.6
6.4
$ 135.8
$ 140.5
Marketable securities with a market value of $2.3
million as of May 26, 2013, were pledged as collateral for
derivative contracts.
The fair value and carrying amounts of long-term debt,
including the current portion, were $8,027.3 million and
$7,369.4 million, respectively, as of May 26, 2013. 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
Risk Management Activities
As a part of our ongoing operations, we are exposed to
market risks such as changes in interest and foreign
currency exchange rates and commodity and equity
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.
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.
Annual Report 2013
59
Unallocated corporate items for fiscal 2013, fiscal 2012
and fiscal 2011 included:
In Millions
2013
2012
2011
Net gain (loss) on mark-to-market
valuation of commodity positions
$ (7.6) $ (122.5) $ 160.3
Fiscal Year
Net loss (gain) on commodity
positions reclassified from
unallocated corporate items
to segment operating profit
13.7
35.7
(93.6)
Net mark-to-market revaluation
of certain grain inventories
(1.7)
(17.4)
28.5
Net mark-to-market valuation
of certain commodity positions
recognized in unallocated
corporate items
$ 4.4 $ (104.2) $ 95.2
As of May 26, 2013, the net notional value of
commodity derivatives was $526.3 million, of which
$297.4 million related to agricultural inputs and $228.9
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, Euribor, and com-
mercial paper rates in the United States and Europe. We
use interest rate swaps, forward-starting interest rate
swaps, and treasury locks to hedge our exposure to inter-
est 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 mar-
ket 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 2013, 2012, and 2011.
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 2013, 2012, and 2011.
During the fourth quarter of fiscal 2013, in advance of
a planned debt refinancing, we entered into $250.0 mil-
lion of treasury locks with an average fixed rate of 1.95
percent.
During the third quarter of fiscal 2013, we entered
into swaps to convert $250.0 million of 0.875 percent
fixed-rate notes due January 29, 2016, to floating rates.
During the second quarter of fiscal 2013, in advance of
a planned debt refinancing, we entered into $200.0 mil-
lion of treasury locks with an average fixed rate of 2.82
percent. All of these treasury locks were cash settled for
$11.8 million during the third quarter of fiscal 2013, coin-
cident with the issuance of our $500.0 million 30-year
fixed-rate notes. As of May 26, 2013, an $11.7 million
pre-tax gain remained in AOCI, which will be reclassified
to earnings over the term of the underlying debt.
During the fourth quarter of fiscal 2011, first quar-
ter of fiscal 2012, and second quarter of fiscal 2012,
we entered into $500.0 million, $300.0 million, and
$200.0 million of forward starting swaps with average
fixed rates of 3.9 percent, 2.7 percent, and 2.4 percent,
respectively, in advance of a planned debt financing. All
of these forward starting swaps were cash settled for
$100.4 million coincident with the issuance of our $1.0
billion 10-year fixed rate notes in November 2011. As of
May 26, 2013, an $84.7 million pre-tax loss remained
in AOCI, which will be reclassified to earnings over the
term of the underlying debt.
During the fourth quarter of fiscal 2011, we entered
into swaps to convert $300.0 million of 1.55 percent
fixed-rate notes due May 16, 2014, to floating rates.
As of May 26, 2013, a $15.1 million pre-tax loss on cash
settled interest rate derivatives for our $500.0 million
30-year fixed rate notes issued June 1, 2010 remained
in AOCI, which will be reclassified to earnings over the
term of the underlying debt.
As of May 26, 2013, an $8.3 million pre-tax loss on
cash settled interest rate swaps for our $1.0 billion
60
Healthy Growth
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
derivatives. Average floating rates are based on rates as
of the end of the reporting period.
In Millions
May 26,
2013
May 27,
2012
Pay-floating swaps - notional amount
$550.0
$834.6
Average receive rate
Average pay rate
1.1%
0.4%
Treasury locks - notional amount
$250.0
1.7%
0.3%
$ —
previously hedged a portion of these net investments by
issuing euro-denominated commercial paper and foreign
exchange forward contracts. As of May 26, 2013, we had
deferred net foreign currency transaction losses of $95.7
million in AOCI associated with hedging activity.
Equity Instruments
Equity price movements affect our compensation expense
as certain investments made by our employees in our
deferred compensation plan are revalued. We use equity
swaps to manage this risk. As of May 26, 2013, the net
notional amount of our equity swaps was $57.0 million.
These swap contracts mature in fiscal 2014.
The interest rate derivative contracts mature at
various dates from fiscal 2014 to 2016 as follows:
In Millions
Pay Floating
Treasury Locks
2014
2015
2016
Total
$300.0
$250.0
—
250.0
$550.0
—
—
$250.0
Foreign Exchange Risk
Foreign currency fluctuations affect our net investments
in foreign subsidiaries and foreign currency cash
flows related to third party purchases, intercompany
loans, product shipments, and foreign-denominated
commercial paper. We are also exposed to the
translation of foreign currency earnings to the U.S.
dollar. Our principal exposures are to the Australian
dollar, Brazilian real, British pound sterling, Canadian
dollar, Chinese renminbi, euro, Japanese yen, Mexican
peso, and Swiss franc. 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 of the entity
with foreign exchange exposure; 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 26, 2013, the net notional value of foreign
exchange derivatives was $985.1 million. The amount of
hedge ineffectiveness was less than $1 million in each of
fiscal 2013, 2012, and 2011.
We also have many net investments in foreign
subsidiaries that are denominated in euros. We
Annual Report 2013
61
Fair Value Measurements And Financial Statement Presentation
The fair values of our assets, liabilities, and derivative positions recorded at fair value and their respective levels in
the fair value hierarchy as of May 26, 2013 and May 27, 2012, were as follows:
In Millions
Level 1 Level 2 Level 3
Total Level 1 Level 2 Level 3
Total
May 26, 2013
May 26, 2013
Fair Values of Assets
Fair Values of Liabilities
Derivatives designated as hedging instruments:
Interest rate contracts (a) (b)
Foreign exchange contracts (c) (d)
Total
Derivatives not designated as hedging instruments:
Foreign exchange contracts (c) (d)
Equity contracts (a) (e)
Commodity contracts (c) (e)
Grain contracts (c) (e)
Total
Other assets and liabilities reported at fair value:
Marketable investments (a) (f)
Total
Total assets, liabilities, and derivative positions
$ — $ 10.3 $ — $ 10.3 $ — $
— $ — $
—
— 15.7
— 15.7 — (1.6)
— (1.6)
— 26.0
— 26.0 — (1.6)
— (1.6)
— 6.7
—
6.7 —
(0.1)
— (0.1)
— —
—
— — (0.2)
— (0.2)
10.3 3.1
— 13.4 — (3.9)
—
(3.9)
— 7.5
—
7.5 — (30.4)
— (30.4)
10.3 17.3
— 27.6 —
(34.6)
— (34.6)
6.4 134.1
— 140.5 —
— —
—
6.4 134.1
— 140.5 —
— — —
recorded at fair value
$ 16.7 $ 177.4 $ — $ 194.1 $ — $ (36.2) $ — $ (36.2)
(a) These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or 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.
62
Healthy Growth
In Millions
Level 1 Level 2 Level 3
Total Level 1 Level 2 Level 3
Total
May 27, 2012
May 27, 2012
Fair Values of Assets
Fair Values of Liabilities
Derivatives designated as hedging instruments:
Interest rate contracts (a) (b)
Foreign exchange contracts (c) (d)
Total
Derivatives not designated as hedging instruments:
Interest rate contracts (a) (b)
Foreign exchange contracts (c) (d)
Equity contracts (a) (e)
Commodity contracts (c) (e)
Grain contracts (c) (e)
Total
Other assets and liabilities reported at fair value:
Marketable investments (a) (f)
Total
Total assets, liabilities, and derivative positions
$
— $ 5.7 $ — $ 5.7 $ — $ — $ — $ —
— 11.5
— 11.5 — (18.8)
— (18.8)
— 17.2
— 17.2 — (18.8)
— (18.8)
— 0.5
— 0.5 —
—
— —
—
6.6
—
6.6 — (1.1)
— (1.1)
— —
— —
— (0.1)
— (0.1)
8.0
1.0
—
9.0 — (15.1)
— (15.1)
—
8.3
—
8.3 — (20.6)
— (20.6)
8.0 16.4
— 24.4 — (36.9)
— (36.9)
5.3 52.3
— 57.6 — —
— —
5.3 52.3
— 57.6 — —
—
—
recorded at fair value
$ 13.3 $ 85.9 $ — $ 99.2 $ — $ (55.7) $ — $ (55.7)
(a) These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or 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.
We did not significantly change our valuation techniques from prior periods.
Annual Report 2013
63
Information related to our cash flow hedges, fair value hedges, and other derivatives not designated as hedging
instruments for the fiscal years ended May 26, 2013, and May 27, 2012, follows:
In Millions
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Interest Rate Foreign Exchange
Contracts
Contracts
Equity
Contracts
Commodity
Contracts
Total
Fiscal Year
Fiscal Year
Fiscal Year
Fiscal Year
Fiscal Year
Derivatives in Cash Flow Hedging Relationships:
Amount of gain (loss) recognized in other
comprehensive income (OCI) (a)
Amount of loss reclassified from
AOCI into earnings (a) (b)
Amount of gain (loss) recognized
in earnings (c)
Derivatives in Fair Value Hedging Relationships:
Amount of net gain (loss) recognized
in earnings (d)
Derivatives Not Designated as Hedging
Instruments:
$19.1 $(78.6) $16.4 $(7.3)
$ — $ — $ — $ — $35.5 $(85.9)
(12.5)
(8.2)
(4.8)
(9.9)
—
—
—
— (17.3) (18.1)
—
(0.5)
0.4
(0.3)
—
—
—
—
0.4
(0.8)
0.8
(0.8)
—
—
—
—
—
—
0.8
(0.8)
Amount of gain (loss) recognized in earnings (d)
—
— 11.6
(1.3)
12.0 (1.0)
(7.6) (122.5) 16.0 (124.8)
(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) Gain (loss) recognized in earnings is related to the ineffective portion of the hedging relationship, including SG&A expenses for foreign exchange contracts
and interest, net for interest rate contracts. 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 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.
64
Healthy Growth
We enter into interest rate, foreign exchange, and cer-
tain 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 trans-
actions 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 regu-
lated exchanges.
The amount of loss due to the credit risk of the coun-
terparties, should the counterparties fail to perform
according to the terms of the contracts, is $30.9 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.
We offer certain suppliers access to a third party ser-
vice that allows them to view our scheduled payments
online. The third party service also allows suppliers to
finance advances on our scheduled payments at the sole
discretion of the supplier and the third party. We have
no economic interest in these financing arrangements
and no direct relationship with the suppliers, the third
party, or any financial institutions concerning this ser-
vice. All of our accounts payable remain as obligations
to our suppliers as stated in our supplier agreements.
As of May 26, 2013, $178.3 million of our total accounts
payable is payable to suppliers who utilize this third
party service.
Amounts Recorded In Accumulated Other
Comprehensive Loss
Unrealized losses from interest rate cash flow hedges
recorded in AOCI as of May 26, 2013, totaled $53.5
million after tax. These deferred losses are primarily
related to interest rate swaps that we entered into in
contemplation of future borrowings and other financ-
ing requirements and that are being reclassified into net
interest over the lives of the hedged forecasted transac-
tions. Unrealized gains from foreign currency cash flow
hedges recorded in AOCI as of May 26, 2013, were $11.8
million after-tax. The net amount of pre-tax gains and
losses in AOCI as of May 26, 2013, that we expect to be
reclassified into net earnings within the next 12 months
is $3.5 million of income.
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 contin-
gent features that were in a liability position on May
26, 2013, was $3.9 million. We have posted no collateral
under these contracts. If the credit-risk-related contin-
gent features underlying these agreements had been
triggered on May 26, 2013, we would have been required
to post $3.9 million of collateral to counterparties.
Concentrations Of Credit And Counterparty Credit Risk
During fiscal 2013, Wal-Mart Stores, Inc. and its affiliates
(Wal-Mart) accounted for 21 percent of our consolidated
net sales and 31 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 26, 2013, Wal-Mart
accounted for 28 percent of our U.S. Retail receivables, 5
percent of our International receivables, and 7 percent
of our Bakeries and Foodservice receivables. The five
largest customers in our U.S. Retail segment accounted
for 54 percent of its fiscal 2013 net sales, the five largest
customers in our International segment accounted for
24 percent of its fiscal 2013 net sales, and the five largest
customers in our Bakeries and Foodservice segment
accounted for 41 percent of its fiscal 2013 net sales.
65
basis points, subject to quarterly reset. Interest on the
floating-rate notes is payable quarterly in arrears. The
floating rate notes are not redeemable prior to matu-
rity. These notes are senior unsecured obligations that
include a change of control repurchase provision. The
net proceeds were used to reduce our commercial paper
borrowings.
In September 2012, we repaid $520.8 million of 5.65
percent notes. In February 2012, we repaid $1.0 billion
of 6.0 percent notes. In November 2011, we issued $1.0
billion aggregate principal amount of 3.15 percent notes
due December 15, 2021. The net proceeds were used to
repay a portion of our notes due February 2012, reduce
our commercial paper borrowings, and for general cor-
porate purposes. Interest on these notes is payable
semi-annually in arrears. These notes may be redeemed
at our option at any time prior to September 15, 2021
for a specified make whole amount and any time on
or after that date at par. These notes are senior unse-
cured, unsubordinated obligations that include a change
of control repurchase provision.
As part of our acquisition of Yoplait S.A.S., we con-
solidated $457.9 million of primarily euro-denominated
Euribor-based floating-rate bank debt. In December 2011,
we refinanced this debt with $390.5 million of euro-
denominated Euribor-based floating-rate bank debt due
at various dates through December 15, 2014.
Certain of our long-term debt agreements contain
restrictive covenants. As of May 26, 2013, we were in
compliance with all of these covenants.
As of May 26, 2013, the $87.1 million pre-tax loss
recorded in AOCI associated with our previously des-
ignated interest rate swaps will be reclassified to net
interest over the remaining lives of the hedged transac-
tions. The amount expected to be reclassified from AOCI
to net interest in fiscal 2014 is $11.6 million pre-tax.
Annual Report 2013
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 26, 2013
May 27, 2012
Weighted-
average
Interest
Rate
Notes
Payable
Weighted-
average
Interest
Rate
Notes
Payable
In Millions
U.S. commercial paper
$515.5
0.2%
$412.0
0.2%
Financial institutions
84.2
13.0
114.5
10.0
Total
$ 599.7
2.0%
$526.5
2.4%
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 have commercial
paper programs available to us in the United States and
Europe. In April 2012, we entered into fee-paid commit-
ted credit lines, consisting of a $1.0 billion facility sched-
uled to expire in April 2015 and a $1.7 billion facility
scheduled to expire in April 2017. We also have $332.8
million in uncommitted credit lines that support our
foreign operations. As of May 26, 2013, there were no
amounts outstanding on the fee-paid committed credit
lines and $84.2 million was drawn on the uncommit-
ted lines. The credit facilities contain several covenants,
including a requirement to maintain a fixed charge cov-
erage ratio of at least 2.5 times. We were in compliance
with all credit facility covenants as of May 26, 2013.
Long-Term Debt In January 2013, we issued $750.0 mil-
lion aggregate principal amount of fixed rate notes. The
issuance consisted of $250.0 million 0.875 percent notes
due January 29, 2016 and $500.0 million 4.15 percent
notes due February 15, 2043. Interest on the fixed-rate
notes is payable semi-annually in arrears. The fixed rate
notes due January 29, 2016 may be redeemed in whole,
or in part, at our option at any time for a specified
make whole amount. The fixed rate notes due February
15, 2043 may be redeemed in whole, or in part, at our
option at any time prior to August 15, 2042 for a speci-
fied make whole amount and any time on or after that
date at par. These notes are senior unsecured obligations
that include a change of control repurchase provision.
The net proceeds were used to reduce our commercial
paper borrowings.
In January 2013, we issued $250.0 million float-
ing rate notes due January 29, 2016. The floating-rate
notes bear interest equal to three-month LIBOR plus 30
66
Healthy Growth
A summary of our long-term debt is as follows:
In Millions
May 26, 2013 May 27,2012
5.65% notes due February 15, 2019
$1,150.0
$1,150.0
5.7% notes due February 15, 2017
3.15% notes due December 15, 2021
1,000.0
1,000.0
1,000.0
1,000.0
5.2% notes due March 17, 2015
5.25% notes due August 15, 2013
5.4% notes due June 15, 2040
4.15% notes due February 15, 2043
Floating-rate notes due May 16, 2014
Euribor-based floating-rate note
due December 15, 2014
1.55% notes due May 16, 2014
0.875% notes due January 29, 2016
750.0
700.0
500.0
500.0
400.0
368.6
300.0
250.0
Floating-rate notes due January 29, 2016
250.0
Medium-term notes, 0.1% to 6.4%,
due fiscal 2014 or later
5.65% notes due September 10, 2012
Other, including capital leases
204.2
—
(3.4)
750.0
700.0
500.0
—
400.0
375.5
300.0
—
—
204.2
520.8
2.6
Less amount due within one year
(1,443.3)
(741.2)
Total long-term debt
$5,926.1
$6,161.9
7,369.4
6,903.1
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 $1,443.3 million in fiscal 2014, $1,181.9 million in fis-
cal 2015, $500.5 million in fiscal 2016, $1,000.0 million in
fiscal 2017, and $100.0 million in fiscal 2018.
NOTE 9. REDEEMABLE AND
NONCONTROLLING INTERESTS
Our principal redeemable and noncontrolling inter-
ests relate to our Yoplait S.A.S., Yoplait Marques S.A.S.,
and General Mills Cereals, LLC (GMC) subsidiaries. In
addition, we have seven foreign subsidiaries that have
noncontrolling interests totaling $8.0 million as of May
26, 2013.
We have a 51 percent controlling interest in Yoplait
S.A.S. and a 50 percent interest in Yoplait Marques
S.A.S. Sodiaal holds the remaining interests in each of
the entities. On the acquisition date, we recorded the
$904.4 million fair value of Sodiaal’s 49 percent euro-
denominated interest in Yoplait S.A.S. as a redeemable
interest on our Consolidated Balance Sheets. Sodiaal
has the ability to put a limited portion of its redeemable
interest to us once per year at fair value up to a maximum
of 9 years. We adjust the value of the redeemable interest
through additional paid-in capital on our Consolidated
Balance Sheets quarterly to the redeemable interest’s
redemption value, which approximates its fair value.
Yoplait S.A.S. pays dividends annually if it meets certain
financial metrics set forth in its shareholders agreement.
As of May 26, 2013, the redemption value of the euro-
denominated redeemable interest was $967.5 million.
On the acquisition date, we recorded the $263.8 million
fair value of Sodiaal’s 50 percent euro-denominated
interest in Yoplait Marques S.A.S. as a noncontrolling
interest on our Consolidated Balance Sheets. Yoplait
Marques S.A.S. earns a royalty stream through a
licensing agreement with Yoplait S.A.S. for the rights to
Yoplait and related trademarks. Yoplait Marques S.A.S.
pays dividends annually based on its available cash as of
its fiscal year end.
In addition, a subsidiary of Yoplait S.A.S. has entered
into an exclusive milk supply agreement for its European
operations with Sodiaal at market-determined prices
through July 1, 2021. Net purchases totaled $263.5
million for fiscal 2013 and $235.7 million for fiscal 2012.
During fiscal 2013, we paid $32.5 million of dividends
to Sodiaal under the terms of the Yoplait S.A.S. and
Yoplait Marques S.A.S. shareholder agreements.
During the first quarter of fiscal 2013, in conjunction
with the consent of the Class A investor, we restructured
GMC through the distribution of its manufacturing
assets, stock, inventory, cash and certain intellectual
property to a wholly owned subsidiary. GMC retained the
remaining intellectual property. Immediately following
the restructuring, the Class A Interests of GMC were
sold by the then current holder to another unrelated
third-party investor.
The holder of the GMC 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 110 basis points, to the holder’s capital account
balance established in the most recent mark-to-market
valuation (currently $251.5 million). The preferred return
rate is adjusted every three years through a negotiated
agreement with the Class A Interest holder or through a
remarketing auction.
For financial reporting purposes, the assets, liabilities,
results of operations, and cash flows of our non-wholly
owned subsidiaries are included in our Consolidated
Financial Statements. The third-party investor’s share of
the net earnings of these subsidiaries is reflected in net
earnings attributable to redeemable and noncontrolling
interests in the Consolidated Statements of Earnings.
Annual Report 2013
67
any, under the forward contract in cash or shares and
we may be required to settle in cash in very limited
circumstances that are under our control or that require
the delivery of cash to all shareholders. Furthermore,
the contract specifies a maximum number of shares
that we could be required to deliver to the counterparty,
and we have sufficient authorized and unissued shares
available to deliver the maximum share amount. Based
on these circumstances, the forward contract meets
the requirements to be classified as permanent equity.
The forward contract is accounted for as an equity
instrument and does not require hedge or derivative
accounting treatment. As long as the forward contract
continues to meet the requirements to be classified as
permanent equity, we will not record future changes in
its fair value. The forward contract continued to meet
those requirements as of May 26, 2013, and we expect
it will continue to meet those requirements through the
settlement date in the first quarter of fiscal 2014.
The initial delivery of 5.5 million shares of our com-
mon stock reduced our outstanding shares used to
determine our weighted average shares outstanding for
purposes of calculating basic and diluted EPS for fiscal
2013. We have also evaluated the ASR agreement for the
potential dilutive effects of any shares remaining to be
received upon settlement and determined that the addi-
tional shares would be anti-dilutive and therefore were
not included in our EPS calculation for fiscal 2013.
Our noncontrolling interests contain restrictive
covenants. As of May 26, 2013, we were in compliance
with all of these covenants.
NOTE 10. STOCKHOLDERS’ EQUITY
Cumulative preference stock of 5.0 million shares, with-
out par value, is authorized but unissued.
On June 28, 2010, our Board of Directors authorized
the repurchase of up to 100 million shares of our com-
mon 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.
During fiscal 2013, we repurchased 24.2 million shares
of common stock for an aggregate purchase price of
$1,014.9 million. During fiscal 2012, we repurchased
8.3 million shares of common stock for an aggregate
purchase price of $313.0 million. During fiscal 2011, we
repurchased 31.8 million shares of common stock for an
aggregate purchase price of $1,163.5 million.
During the fourth quarter of fiscal 2013, we entered
into an accelerated share repurchase (ASR) agreement
with an unrelated third party financial institution
to repurchase an aggregate of $300.0 million of our
outstanding common stock. The total aggregate number
of shares to be repurchased pursuant to this agreement
will be determined based on the volume weighted
average price of our common stock during the purchase
period, less a fixed discount. Under the ASR agreement,
we paid $300.0 million to the financial institution and
received 5.5 million shares of common stock with a
fair value of $270.0 million during the fourth quarter
of 2013, which represents approximately 90 percent of
the total shares expected to be repurchased under the
agreement. We will settle the remaining shares upon the
completion of the ASR agreement in the first quarter of
fiscal 2014. We recorded this transaction as an increase
in treasury stock of $270.0 million, and recorded the
remaining $30.0 million as a decrease to additional
paid in capital on our Consolidated Balance Sheets as
of May 26, 2013. We will reclassify the $30.0 million
recorded in additional paid in capital to treasury stock
at completion of the ASR. This forward contract is
indexed to, and potentially settled in, our common stock.
In accordance with the terms of the ASR agreement,
we have the option to settle our delivery obligation, if
68
Healthy Growth
The following table provides details of total comprehensive income:
In Millions
Net earnings, including earnings
attributable to redeemable and
noncontrolling interests
Other comprehensive income (loss):
Foreign currency translation
Net actuarial income
Other fair value changes:
Securities
Hedge derivatives
Reclassification to earnings:
Hedge derivatives (a)
Amortization of losses and
prior service costs (b)
Other comprehensive income
Total comprehensive income
Pretax
General Mills
Tax
Net
Noncontrolling
Interests
Net
Redeemable
Interests
Net
Fiscal 2013
$ 1,855.2
$ 8.0
$ 29.3
$ (19.8)
76.3
$ —
(31.3)
$
(19.8)
45.0
1.2
33.5
(0.4)
(10.4)
0.8
23.1
15.0
(4.5)
10.5
159.9
266.1
(61.1)
(107.7)
98.8
158.4
$ 2,013.6
10.3
—
—
—
—
—
10.3
$ 18.3
10.3
—
—
1.5
1.7
—
13.5
$ 42.8
(a) Gain 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.
(b) Loss reclassified from AOCI into earnings is reported in SG&A expense.
In Millions
Net earnings, including earnings
attributable to redeemable and
noncontrolling interests
Other comprehensive income (loss):
Foreign currency translation
Net actuarial loss
Other fair value changes:
Securities
Hedge derivatives
Reclassification to earnings:
Hedge derivatives (a)
Amortization of losses and
prior service costs (b)
Other comprehensive loss
Total comprehensive income (loss)
Pretax
General Mills
Tax
Net
Noncontrolling
Interests
Net
Redeemable
Interests
Net
Fiscal 2012
$ 1,567.3
$
6.8
$ 15.0
$ (270.3)
(813.1)
$ —
308.5
$
(270.3)
(504.6)
(0.3)
(80.8)
0.1
31.2
(0.2)
(49.6)
(51.1)
—
—
—
(98.7)
—
—
(3.8)
16.3
(6.2)
10.1
—
1.4
131.6
(1,016.6)
(49.9)
283.7
81.7
(732.9)
$ 834.4
—
(51.1)
$ (44.3)
—
(101.1)
$ (86.1)
(a) Gain 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.
(b) Loss reclassified from AOCI into earnings is reported in SG&A expense.
Annual Report 2013
69
In Millions
Net earnings, including earnings
attributable to redeemable and
noncontrolling interests
Other comprehensive income (loss):
Fiscal 2011
Pretax
General Mills
Tax
Net
Noncontrolling
Interests
Net
$ 1,798.3
$
5.2
Foreign currency translation
$ 358.3
$
—
$ 358.3
Net actuarial income
Other fair value changes:
Securities
Hedge derivatives
Reclassification to earnings:
Hedge derivatives (a)
Amortization of losses and
prior service costs (b)
Other comprehensive income
Total comprehensive income
93.5
(32.4)
61.1
(5.8)
(39.8)
2.2
14.4
(3.6)
(25.4)
29.8
(11.3)
18.5
0.7
—
—
—
—
108.7
544.7
(41.5)
(68.6)
67.2
476.1
$ 2,274.4
—
0.7
$
5.9
(a) Gain 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.
(b) Loss reclassified from AOCI into earnings is reported in SG&A expense.
In fiscal 2013, 2012, and 2011, 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:
In Millions
May 26, 2013 May 27, 2012
Foreign currency translation
adjustments
Unrealized gain (loss) from:
Securities
Hedge derivatives
Pension, other postretirement, and
postemployment benefits:
Net actuarial loss
Prior service costs
$ 263.1
$ 282.9
2.6
(41.7)
1.8
(75.3)
of unrestricted stock under the 2011 Stock Compensation
Plan (2011 Plan) and the 2011 Compensation Plan for
Non-Employee Directors. The 2011 Plan also provides
for the issuance of cash-settled share-based units, stock
appreciation rights, and performance awards. Stock-
based awards now outstanding include some granted
under the 1998 (employee), 2001, 2003, 2005, 2006,
2007, and 2009 stock plans and the Executive Incentive
Plan (EIP), under which no further awards may be
granted. The stock plans provide for accelerated vesting
of awards upon retirement, termination, or death of
eligible employees and directors.
(1,801.5)
(1,945.9)
(7.8)
(7.2)
Stock Options The estimated fair values of stock options
granted and the assumptions used for the Black-Scholes
option-pricing model were as follows:
Accumulated other comprehensive loss $ (1,585.3)
$ (1,743.7)
Fiscal Year
2013
2012
2011
NOTE 11. STOCK PLANS
stock options granted
$ 3.65
$ 5.88
$ 4.12
Estimated fair values of
We use broad-based stock plans to help ensure that
management’s interests are aligned with those of our
stockholders. As of May 26, 2013, a total of 35,492,790
shares were available for grant in the form of stock
options, restricted stock, restricted stock units, and shares
Assumptions:
Risk-free interest rate
1.6%
2.9%
2.9%
Expected term
9.0 years
8.5 years
8.5 years
Expected volatility
17.3%
17.6%
18.5%
Dividend yield
3.5%
3.3%
3.0%
70
Healthy Growth
Information on stock option activity follows:
Weighted-
Average
Exercise
Weighted-
Average
Exercise
Exercisable Price Per Outstanding Price Per
Share
(Thousands)
(Thousands)
Options
Options
Share
Balance as of
May 30, 2010
47,726.6 $22.89
81,104.6 $25.17
Granted
Exercised
Forfeited or expired
Balance as of
5,234.3 37.38
(18,665.4)
22.59
(126.2)
31.26
May 29, 2011
39,221.7
23.78
67,547.3
26.82
Granted
Exercised
Forfeited or expired
Balance as of
4,069.0
37.29
(10,279.3)
24.12
(394.3)
27.88
May 27, 2012
39,564.9
25.27
60,942.7
27.96
Granted
Exercised
Forfeited or expired
Balance as of
3,407.7
38.15
(16,534.6)
23.49
(143.7)
34.06
May 26, 2013
29,290.3 $27.69 47,672.1 $30.22
Stock-based compensation expense related to stock
option awards was $17.5 million in fiscal 2013, $23.9
million in fiscal 2012, and $26.8 million in fiscal 2011.
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:
In Millions
2013
2012
2011
Fiscal Year
Net cash proceeds
Intrinsic value of
$300.8
$233.5
$410.4
options exercised
$297.2
$156.7
$275.6
The valuation of stock options is a significant account-
ing estimate that requires us to use judgments and
assumptions that are likely to have a material impact
on our financial statements. Annually, we make predic-
tive assumptions regarding future stock price volatility,
employee exercise behavior, dividend yield, and the for-
feiture 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 esti-
mating 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 exer-
cise or vesting of an award in excess of that previously
recognized in earnings (referred to as a windfall tax ben-
efit) 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 consoli-
dated effective income tax rate. We calculated a cumu-
lative memo balance of windfall tax benefits 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.
Annual Report 2013
71
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 2011 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.
Information on restricted stock unit and cash-settled share-based units activity follows:
Equity Classified
Liability Classified
Share-
Settled
Units
(Thousands)
Weighted-
Average
Grant-Date
Fair Value
Share-
Settled
Units
(Thousands)
Weighted-
Average
Grant-Date
Fair Value
Cash-Settled
Share-Based
Units
(Thousands)
Weighted-
Average
Grant-Date
Fair Value
Non-vested as of May 27, 2012
Granted
Vested
Forfeited or expired
Non-vested as of May 26, 2013
8,551.8
2,330.4
(2,495.0)
(345.0)
8,042.2
$33.79
38.42
32.05
36.00
$35.89
397.1
74.5
(73.0)
(10.4)
$32.68
38.15
31.68
35.60
388.2
$32.60
3,991.5
$31.58
—
—
31.64
32.31
$38.41
(1,638.2)
(65.5)
2,287.8
Fiscal Year
In Millions
Number of units granted (thousands)
Weighted average price per unit
2013
2012
2011
2,404.9
2,785.7
3,751.6
$38.41
$37.29
$36.16
72
Healthy Growth
The total grant-date fair value of restricted stock unit
awards that vested during fiscal 2013 was $134.1 million,
and $106.0 million vested during fiscal 2012.
As of May 26, 2013, unrecognized compensation
expense related to non-vested stock options and
restricted stock units was $125.4 million. This expense
will be recognized over 17 months, on average.
Stock-based compensation expense related to
restricted stock units and cash-settled share-based pay-
ment awards was $128.9 million for fiscal 2013, $124.3
million for fiscal 2012, and $141.2 million for fiscal 2011.
NOTE 12. EARNINGS PER SHARE
Basic and diluted EPS were calculated using the
following:
Fiscal Year
In Millions, Except per Share Data
2013
2012
2011
Net earnings attributable
to General Mills
$1,855.2 $1,567.3 $1,798.3
Average number of common
shares - basic EPS
648.6
648.1
642.7
Incremental share effect from: (a)
Stock options
Restricted stock, restricted
12.0
13.9
16.6
stock units, and other
5.0
4.7
5.5
Average number of
common shares - diluted EPS
665.6
666.7
664.8
Earnings per share - basic
$ 2.86 $ 2.42
$ 2.80
Earnings per share - diluted
$ 2.79 $ 2.35
$ 2.70
(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:
In Millions
2013
2012
2011
Anti-dilutive stock options
and restricted stock units
0.6
5.8
4.8
Fiscal Year
NOTE 13. RETIREMENT BENEFITS AND
POSTEMPLOYMENT BENEFITS
Defined Benefit Pension Plans We have defined ben-
efit pension plans covering most employees in the
United States, Canada, France, and the United Kingdom.
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 con-
sistent with the requirements of applicable laws. We
made $200.0 million of voluntary contributions to our
principal U.S. plans in each of fiscal 2013 and fiscal 2012.
We do not expect to be required to make any contribu-
tions in fiscal 2014. 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. In fiscal 2012, we announced
changes to our U.S. defined benefit pension plans. All
new salaried employees hired on or after June 1, 2013
are eligible for a new retirement program that does not
include a defined benefit pension plan. Current salaried
employees remain in the existing defined benefit pen-
sion plan with adjustments to benefits.
Other Postretirement Benefit Plans We also sponsor
plans that provide health care benefits to the majority
of our retirees in the United States, Canada, and Brazil.
The United States 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 2013 or fiscal 2012.
Health Care Cost Trend Rates Assumed health care
cost trends are as follows:
Fiscal Year
2013
2012
Health care cost trend rate for next year
8.0%
8.5%
Rate to which the cost trend rate is
assumed to decline (ultimate rate)
5.2%
5.2%
Year that the rate reaches the
ultimate trend rate
2019
2019
Annual Report 2013
73
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 8.0
percent for all retirees at the end of fiscal 2013. 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:
In Millions
One
Percentage
Point
Increase
One
Percentage
Point
Decrease
Effect on the aggregate of the service and
interest cost components in fiscal 2014
$ 5.2
$ (4.4)
Effect on the other postretirement
accumulated benefit obligation as of
May 26, 2013
93.8
(82.9)
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 Act’s provisions are incorporated into our postre-
tirement benefit liability.
Postemployment Benefit Plans Under certain circum-
stances, 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 pay-
able upon death. We recognize an obligation for any
of these benefits that vest or accumulate with service.
Postemployment benefits that do not vest or accumu-
late with service (such as severance based solely on
annual pay rather than years of service) are charged
to expense when incurred. Our postemployment ben-
efit plans are unfunded.
We use our fiscal year end as the measurement date
for our defined benefit pension and other postretire-
ment benefit plans.
74
Healthy Growth
Summarized financial information about defined benefit pension, other postretirement, and postemployment
benefit plans is presented below:
In Millions
Change in Plan Assets:
Defined Benefit
Pension Plans
Fiscal Year
Other
Postretirement
Benefit Plans
Fiscal Year
Postemployment
Benefit Plans
Fiscal Year
2013
2012
2013
2012
2013
2012
Fair value at beginning of year
$4,353.9 $4,264.0
$ 358.8 $ 353.8
Actual return on assets
Employer contributions
Plan participant contributions
Benefits payments
Foreign currency
Fair value at end of year
Change in Projected Benefit Obligation:
698.7
56.3
223.1
222.1
15.2
20.3
(222.6)
(203.3)
(2.2)
(5.5)
67.9
0.1
13.0
(2.9)
—
(4.8)
0.1
12.2
(2.5)
—
$5,066.1 $4,353.9
$ 436.9 $ 358.8
Benefit obligation at beginning of year
$4,991.5 $4,458.4
$ 1,129.0 $ 1,065.8
$ 141.3
$ 131.3
Service cost
Interest cost
Plan amendment
Curtailment/other
Plan participant contributions
Medicare Part D reimbursements
Actuarial loss (gain)
Benefits payments
Foreign currency
Acquisitions
124.4
114.3
237.3
237.9
0.2
—
15.2
—
(13.4)
(27.1)
20.3
—
237.5
405.7
(222.8)
(203.5)
(1.9)
—
(5.9)
4.8
21.6
52.1
—
—
13.0
4.1
(23.0)
(58.9)
(0.1)
10.4
18.0
55.6
—
0.1
12.2
4.7
28.4
(55.5)
(0.3)
—
7.8
4.4
4.5
7.5
4.8
—
11.4
11.9
—
—
(10.4)
(13.6)
—
—
—
—
5.5
(19.6)
(0.1)
—
Projected benefit obligation at end of year
$5,381.4 $4,991.5
$ 1,148.2 $ 1,129.0
$ 145.4 $ 141.3
Plan assets less than benefit
obligation as of fiscal year end
$ (315.3) $ (637.6)
$ (711.3) $ (770.2)
$ (145.4) $ (141.3)
The accumulated benefit obligation for all defined benefit pension plans was $4,888.8 million as of May 26, 2013,
and $4,504.7 million as of May 27, 2012.
Amounts recognized in AOCI as of May 26, 2013, and May 27, 2012, are as follows:
Defined Benefit
Pension Plans
Fiscal Year
Other
Postretirement
Benefit Plans
Fiscal Year
Postemployment
Benefit Plans
Fiscal Year
Total
Fiscal Year
In Millions
2013
2012
2013
2012
2013
2012
2013
2012
Net actuarial loss
$(1,625.1) $(1,714.1)
$(168.2) $(215.0)
$ (8.2)
$(16.8)
$(1,801.5) $ (1,945.9)
Prior service (costs) credits
(18.5)
(22.0)
16.6
19.0
(5.9)
(4.2)
(7.8)
(7.2)
Amounts recorded in accumulated
other comprehensive loss
$(1,643.6) $(1,736.1)
$(151.6) $(196.0)
$(14.1)
$(21.0)
$(1,809.3) $ (1,953.1)
Annual Report 2013
75
Plans with accumulated benefit obligations in excess of plan assets are as follows:
Defined Benefit
Pension Plans
Fiscal Year
Other
Postretirement
Benefit Plans
Fiscal Year
Postemployment
Benefit Plans
Fiscal Year
In Millions
2013
2012
2013
2012
2013
2012
Projected benefit obligation
Accumulated benefit obligation
Plan assets at fair value
$396.9
$423.4
$
— $
—
$
— $ —
346.6
361.5
1,132.9 1,129.0
145.4
141.3
9.5
53.0
436.9
358.8
—
—
Components of net periodic benefit expense are as follows:
Defined Benefit
Pension Plans
Fiscal Year
Other
Postretirement
Benefit Plans
Fiscal Year
Postemployment
Benefit Plans
Fiscal Year
2013
2012
2011
2013
2012
2011
2013
2012
2011
$ 124.4 $ 114.3 $ 101.4
$ 21.6
$ 18.0
$ 18.7
$ 7.8
$ 7.5
$ 8.0
Expected return on plan assets
(428.0)
(440.3)
(408.5)
(32.1)
(35.5)
(33.2)
Amortization of losses
136.0
108.1
81.4
17.1
14.5
14.4
237.3
237.9
230.9
52.1
55.6
60.1
4.4
—
2.1
4.8
—
1.7
6.2
—
8.6
—
9.0
—
(3.4)
—
(3.4)
—
(0.6)
—
1.9
11.4
2.1
12.0
$ 75.9 $ 28.6 $ 14.2
$ 55.3
$ 49.2
$ 59.4
$ 27.6
$ 28.1
$ 21.8
We expect to recognize the following amounts in net periodic benefit expense in fiscal 2014:
In Millions
Amortization of losses
Amortization of prior service costs (credits)
Defined Benefit
Pension Plans
Other Postretirement
Benefit Plans
Postemployment
Benefit Plans
$ 151.1
5.6
$ 15.4
(3.4)
$ 0.6
2.4
Assumptions Weighted-average assumptions used to determine fiscal year-end benefit obligations are as follows:
Discount rate
Rate of salary increases
Defined Benefit
Pension Plans
Fiscal Year
Other
Postretirement
Benefit Plans
Fiscal Year
Postemployment
Benefit Plans
Fiscal Year
2013
2012
2013
2012
2013
2012
4.54%
4.85%
4.50%
4.70%
3.70%
3.86%
4.44
4.44
—
—
4.44
4.45
In Millions
Service cost
Interest cost
Amortization of prior service
costs (credits)
Other adjustments
Net expense
5.1
—
2.1
2.4
4.2
76
Healthy Growth
Weighted-average assumptions used to determine fiscal year net periodic benefit expense are as follows:
Defined Benefit
Pension Plans
Fiscal Year
Other
Postretirement
Benefit Plans
Fiscal Year
Postemployment
Benefit Plans
Fiscal Year
2013
2012
2011
2013
2012
2011
2013
2012
2011
Discount rate
4.85%
5.45%
5.85%
4.70%
5.35%
5.80%
3.86%
4.77%
5.12%
Rate of salary increases
4.44
4.92
4.93
—
—
—
4.45
4.92
4.93
Expected long-term rate of
return on plan assets
8.53
9.52
9.53
8.13
9.32
9.33
—
—
—
Discount Rates Our discount rate assumptions are
determined annually as of the last day of our fiscal
year for our defined benefit pension, other postretire-
ment, and postemployment benefit plan obligations.
We also use the same discount rates to determine
defined benefit pension, other postretirement, and pos-
temployment benefit plan income and expense for the
following fiscal year. We work with our outside actuar-
ies to determine the timing and amount of expected
future cash outflows to plan participants and, using
the Aa Above Median corporate bond yield, to develop
a forward interest rate curve, including a margin to that
index based on our credit risk. This forward interest
rate curve is applied to our expected future cash out-
flows to determine our discount rate assumptions.
Fair Value of Plan Assets The fair values of our pension
and postretirement benefit plans’ assets and their respec-
tive levels in the fair value hierarchy at May 26, 2013 and
May 27, 2012, by asset category were as follows:
In Millions
Level 1
Level 2
Level 3
Total Assets
May 26, 2013
Fair value measurement of pension plan assets:
Equity (a)
Fixed income (b)
Real asset investments (c)
Other investments (d)
Cash and accruals
Total fair value measurement of pension plan assets
Fair value measurement of postretirement benefit plan assets:
Equity (a)
Fixed income (b)
Real asset investments (c)
Other investments (d)
Cash and accruals
$ 1,439.4
$ 828.3
$ 559.3
$ 2,827.0
476.6
131.1
—
169.7
801.0
169.1
60.9
—
—
430.4
0.3
—
1,277.6
730.6
61.2
169.7
$ 2,216.8
$ 1,859.3
$ 990.0
$ 5,066.1
$
93.1
17.2
1.8
—
9.8
$ 92.0
$ 20.2
$ 205.3
50.3
7.1
130.9
—
—
14.5
—
—
67.5
23.4
130.9
9.8
Fair value measurement of postretirement benefit plan assets
$ 121.9
$ 280.3
$ 34.7
$ 436.9
Annual Report 2013
77
In Millions
Level 1
Level 2
Level 3
Total Assets
May 27, 2012
Fair value measurement of pension plan assets:
Equity (a)
Fixed income (b)
Real asset investments (c)
Other investments (d)
Cash and accruals
$ 1,119.2
$ 717.6
$ 575.4
$ 2,412.2
506.1
135.0
647.2
88.9
—
49.6
—
361.2
0.3
1,153.3
585.1
49.9
153.4
—
—
153.4
Total fair value measurement of pension plan assets
$ 1,913.7
$ 1,503.3
$ 936.9
$ 4,353.9
Fair value measurement of postretirement benefit plan assets:
Equity (a)
Fixed income (b)
Real asset investments (c)
Other investments (d)
Cash and accruals
$
12.6
15.7
4.3
—
10.7
$ 135.4
$ 22.0
$ 170.0
39.1
5.7
104.9
—
—
8.4
—
—
54.8
18.4
104.9
10.7
Fair value measurement of postretirement benefit plan assets
$
43.3
$ 285.1
$ 30.4
$ 358.8
(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: United States and international equity securities, mutual funds, and equity futures valued at closing prices from national
exchanges; and commingled funds, privately held securities, and private equity partnerships valued at unit values or net asset values provided by the invest-
ment 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: fixed income securities and bond futures generally valued at closing prices from national exchanges, fixed income pricing models, and independent
financial analysts; and fixed income 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: energy and
real estate securities generally valued at closing prices from national exchanges; and 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 insur-
ance and annuity contracts to provide 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.
78
Healthy Growth
The following table is a roll forward of the Level 3 investments of our pension and postretirement benefit plans’
assets during the years ended May 26, 2013 and May 27, 2012:
In Millions
Pension benefit plan assets:
Equity
Fixed income
Real asset investments
Other investments
Fiscal 2013
Balance as of
May 27, 2012
Net
Transfers
Out
Net Purchases,
Sales, Issuances,
and Settlements
Net Balance as of
Gain May 26, 2013
$ 575.4
$ (0.1)
$ (61.0)
$ 45.0
$ 559.3
—
361.2
0.3
—
—
—
—
—
—
48.3
20.9
430.4
—
—
0.3
Fair value activity of level 3 pension plan assets
$ 936.9
$ (0.1)
$ (12.7)
$ 65.9
$ 990.0
Postretirement benefit plan assets:
Equity
Fixed income
Real asset investments
$ 22.0
$ —
$ (2.3)
$ 0.5
$ 20.2
—
8.4
—
—
—
—
4.8
1.3
—
14.5
Fair value activity of level 3 postretirement benefit plan assets
$ 30.4
$ —
$ 2.5
$ 1.8
$ 34.7
In Millions
Pension benefit plan assets:
Equity
Fixed income
Real asset investments
Other investments
Fiscal 2012
Balance as of
May 29, 2011
Net
Transfers
Out
Net Purchases,
Sales Issuances,
and Settlements
Net
Gain Balance as of
(Loss) May 27, 2012
$ 568.5
$ (1.2)
$ (28.4) $ 36.5
$ 575.4
0.2
356.9
—
(48.9)
0.3
—
(0.2)
—
32.8
—
20.4
—
—
361.2
0.3
Fair value activity of level 3 pension plan assets
$ 925.9
$ (50.1)
$4.2
$ 56.9
$ 936.9
Postretirement benefit plan assets:
Equity
Fixed income
Real asset investments
$ 26.3
$ —
$
(4.1)
$ (0.2)
$ 22.0
0.2
—
13.6
(4.0)
—
(1.1)
(0.2)
(0.1)
—
8.4
Fair value activity of level 3 postretirement benefit plan assets
$ 40.1
$ (4.0)
$ (5.2)
$ (0.5)
$ 30.4
The net change in level 3 assets attributable to
unrealized losses at May 26, 2013, was $ 6.3 million
for our pension plan assets, and $0.9 million for our
postretirement benefit 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, invest-
ment services, and investment managers), and long-
term inflation assumptions. We review this assumption
annually for each plan, however, our annual invest-
ment performance for one particular year does not, by
itself, significantly influence our evaluation.
Annual Report 2013
79
Other
Defined
Benefit
Pension
Postretirement Medicare Postemployment
Benefit
Benefit Plans
Subsidy
Plans
Plans Gross Payments Receipts
$ 236.3
$ 56.8
$ 4.7
$ 18.8
243.6
251.6
260.6
270.1
60.4
5.2
62.4
5.6
63.8
6.1
66.7
6.5
2019-2023
1,512.3
371.3
28.5
17.4
16.3
15.3
14.7
66.4
In Millions
2014
2015
2016
2017
2018
Defined Contribution Plans The General Mills Savings
Plan is a defined contribution plan that covers domes-
tic salaried, hourly, nonunion, and certain union employ-
ees. 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 $19.4 mil-
lion as of May 26, 2013, and $18.7 million as of May
27, 2012. We also sponsor defined contribution plans
in many of our foreign locations. Our total recognized
expense related to defined contribution plans was $46.0
million in fiscal 2013, $41.8 million in fiscal 2012, and
$41.8 million in fiscal 2011.
We matched a percentage of employee contributions
to the General Mills Savings Plan. Effective April 1, 2010,
the Company match is directed to investment options
of the participant’s 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 allo-
cated to participants in the ESOP was 9.1 million as of
May 26, 2013, and 10.6 million as of May 27, 2012. The
ESOP’s only assets are our common stock and temporary
cash balances.
The Company stock fund and the ESOP held $691.9
million and $638.6 million of Company common stock as
of May 26, 2013, and May 27, 2012.
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
Pension Plans
Other Postretirement
Benefit Plans
Fiscal Year
Fiscal Year
2013
2012
2013
2012
Asset category:
United States equities 29.5%
28.7%
39.4%
International equities 17.3
Private equities
Fixed income
Real assets
11.2
27.5
14.5
15.7
13.3
28.6
13.7
21.6
4.7
28.9
5.4
38.4%
19.9
6.2
30.3
5.2
Total
100.0%
100.0% 100.0%
100.0%
The investment objective for our defined benefit pen-
sion 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 plan and other postretirement ben-
efit plan 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 plans, the
long-term investment policy allocation is: 25 percent to
equities in the United States; 15 percent to international
equities; 10 percent to private equities; 35 percent to fixed
income; and 15 percent to real assets (real estate, energy,
and timber). For other postretirement benefit plans, the
long-term investment policy allocations are: 30 percent
to equities in the United States; 20 percent to interna-
tional 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 be required to make contributions to our
defined benefit, other postretirement, and postemploy-
ment benefit plans in fiscal 2014. Actual fiscal 2014
contributions could exceed our current projections, as
influenced by our decision to undertake discretion-
ary 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 2014 to 2023 as follows:
80
Healthy Growth
NOTE 14. INCOME TAXES
The tax effects of temporary differences that give rise
to deferred tax assets and liabilities are as follows:
The components of earnings before income taxes and
after-tax earnings from joint ventures and the corre-
sponding income taxes thereon are as follows:
In Millions
Accrued liabilities
May 26, 2013
May 27, 2012
$ 154.6
$
86.9
In Millions
2013
2012
2011
Fiscal Year
Earnings before income
taxes and after-tax earnings
from joint ventures:
United States
Foreign
Total earnings before
income taxes and after-tax
$2,051.2 $1,816.5 $2,144.8
483.7
394.0
283.4
earnings from joint ventures $2,534.9 $2,210.5 $2,428.2
Income taxes:
Currently payable:
Federal
State and local
Foreign
Total current
Deferred:
Federal
State and local
Foreign
Total deferred
Total income taxes
$ 493.4 $ 399.1 $ 370.0
39.5
52.0
126.5
109.1
76.9
68.9
659.4
560.2
515.8
68.8
167.9
178.9
19.2
(1.3)
(6.2)
(17.2)
30.8
(4.4)
Compensation and employee benefits
619.2
Unrealized hedge losses
Pension liability
Tax credit carryforwards
Stock, partnership, and
miscellaneous investments
Capital losses
Net operating losses
Other
6.9
112.5
78.0
461.1
13.6
65.1
138.8
635.4
26.4
240.1
86.5
534.3
90.7
130.6
151.9
Gross deferred tax assets
1,649.8
1,982.8
Valuation allowance
Net deferred tax assets
Brands
Fixed assets
Intangible assets
Tax lease transactions
Inventories
Stock, partnership, and
232.8
384.4
1,417.0
1,598.4
1,380.4
1,292.8
537.4
168.3
55.1
52.0
500.1
289.1
56.5
55.9
miscellaneous investments
456.7
468.2
Unrealized hedges
81.8
149.4
205.3
Other
$ 741.2 $ 709.6 $ 721.1
Gross deferred tax liabilities
Net deferred tax liability
—
28.2
—
47.5
2,678.1
2,710.1
$ 1,261.1
$ 1,111.7
The following table reconciles the United States statu-
tory income tax rate with our effective income tax rate:
Fiscal Year
2013
2012
2011
United States statutory rate
35.0%
35.0%
35.0%
State and local income taxes,
net of federal tax benefits
Foreign rate differences
1.3
(0.6)
Deferred taxes for Medicare subsidies (1.3)
GMC subsidiary restructure
(2.5)
Court decisions and audit settlements —
Domestic manufacturing deduction
Other, net
(2.1)
(0.6)
1.4
(2.0)
—
—
—
(1.8)
(0.5)
2.7
(2.0)
—
—
(3.7)
(1.6)
(0.7)
Effective income tax rate
29.2%
32.1%
29.7%
We have established a valuation allowance against
certain of the categories of deferred tax assets described
above as current evidence does not suggest we will realize
sufficient taxable income of the appropriate character
(e.g., ordinary income versus capital gain income) within
the carryforward period to allow us to realize these
deferred tax benefits.
Of the total valuation allowance of $232.8 million,
$161.8 million relates to a deferred tax asset for losses
recorded as part of the Pillsbury acquisition. Of the
remaining valuation allowance, $67.1 million relates to
state net operating loss carryforwards and various foreign
loss carryforwards. During fiscal 2013, we reversed
deferred tax assets and related valuation allowances of
$85.6 million due to the expiration of certain capital loss
carryovers. We have approximately $72 million of U.S.
foreign tax credit carryforwards for which no valuation
allowance has been recorded. As of May 26, 2013, we
believe it is more-likely-than-not that the remainder of
our deferred tax assets are realizable.
Annual Report 2013
81
The carryforward periods on our foreign loss carry-
forwards are as follows: $33.4 million do not expire; $4.6
million expire in fiscal 2014 and 2015; and $21.6 million
expire in fiscal 2016 and beyond.
We have not recognized a deferred tax liability for
unremitted earnings of approximately $2.7 billion from
our foreign operations because our subsidiaries have
invested or will invest the undistributed earnings indefi-
nitely, or the earnings will be remitted in a tax-neutral
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 indefi-
nitely reinvested.
In fiscal 2010, we recorded a non-cash income tax
charge and decrease to our deferred tax assets of $35.0
million related to a reduction of the tax deductibility of
retiree health cost to the extent of any Medicare Part
D subsidy received beginning in fiscal 2013 under the
enactment of the Patient Protection and Affordable
Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010. During fiscal 2013, we took
certain actions to restore part of the tax benefits asso-
ciated with Medicare Part D subsidies and recorded a
$33.7 million discrete decrease to income tax expense
and an increase to our deferred tax assets.
During the first quarter of fiscal 2013, in conjunction
with the consent of the Class A investor, we restruc-
tured GMC through the distribution of its manufactur-
ing assets, stock, inventory, cash and certain intellectual
property to a wholly owned subsidiary. GMC retained
the remaining intellectual property. Immediately follow-
ing this restructuring, the Class A Interests were sold by
the then current holder to another unrelated third party
investor. As a result of these transactions, we recorded
a $63.3 million decrease to deferred income tax liabilities
related to the tax basis of the investment in GMC and
certain distributed assets, with a corresponding discrete
non-cash reduction to income taxes in fiscal 2013.
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 juris-
dictions include the United States (federal and state) and
Canada. 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.
The Internal Revenue Service (IRS) initiated its audit of
our fiscal 2011 and fiscal 2012 tax years during fiscal 2013.
Currently, several state examinations are in progress.
During fiscal 2013, the IRS concluded its field exami-
nation of our 2009 and 2010 tax years. The IRS has
proposed adjustments related to the timing for deducting
accrued bonus expenses. We believe our position is sup-
ported by substantial technical authority and have filed
an appeal with the IRS Appeals Division (IRS Appeals).
The audit closure and related proposed adjustments did
not have a material impact on our current year results
of operations or financial position. If we are unsuccess-
ful in defending our position with respect to accrued
bonuses, we will incur a one-time cash tax payment of
approximately $80 million. As of May 26, 2013, we have
effectively settled all issues with the IRS for fiscal years
2008 and prior.
Also during fiscal 2013, the California Court of Appeal
issued an adverse decision concerning our state income
tax apportionment calculations. We had previously
recorded an $11.5 million increase in our total liabilities
for uncertain tax positions in fiscal 2011 following an
unfavorable decision by the Superior Court of the State
of California related to this matter. We expect to pay a
majority of the tax due related to this issue in fiscal 2014.
During fiscal 2012, we reached a settlement with IRS
Appeals concerning research and development tax cred-
its claimed for fiscal years 2002 to 2008. This settlement
did not have a material impact on our results of opera-
tions or financial position.
During fiscal 2011, we reached a settlement with IRS
Appeals concerning certain corporate income tax adjust-
ments for fiscal years 2002 to 2008. The adjustments
primarily relate to the amount of capital loss, deprecia-
tion, 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.
82
Healthy Growth
The Canadian Revenue Agency (CRA) reviewed our
Canadian income tax returns for fiscal years 2003 to
2005 and raised assessments for these years to which
we have objected. During fiscal 2013, the issue related
to our 2003 fiscal year was resolved with no adjustment.
The issue for fiscal years 2004 and 2005 is currently
under review by the U.S. and Canadian competent
authority divisions. The CRA initiated its audit of our
fiscal years 2008 through 2011 during fiscal year 2013.
The CRA audit for fiscal 2008 was closed with no
significant adjustments. The audit for fiscal years 2009
through 2011 is ongoing.
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 rec-
ognition 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 quar-
ter of such change.
The following table sets forth changes in our total
gross unrecognized tax benefit liabilities, excluding
accrued interest, for fiscal 2013. Approximately $92 mil-
lion of this total represents the amount that, if recog-
nized, would affect our effective income tax rate in future
periods. This amount differs from the gross unrecog-
nized 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 rec-
ognition of the state tax benefits included therein.
In Millions
Fiscal Year
2013
2012
As of May 26, 2013, we expect to pay approximately
$12 million of unrecognized tax benefit liabilities and
accrued interest 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 2013, we recognized a net benefit of $3.0 mil-
lion of tax-related net interest and penalties, and had
$53.1 million of accrued interest and penalties as of May
26, 2013. For fiscal 2012, we recognized $0.2 million asso-
ciated with tax-related interest and penalties, and had
$49.3 million of accrued interest and penalties as of
May 27, 2012.
NOTE 15. LEASES, OTHER COMMITMENTS,
ANd CONTINgENCIES
An analysis of rent expense by type of property for oper-
ating leases follows:
Fiscal Year
In Millions
2013
2012
2011
Warehouse space
$ 82.8
$ 72.6
$ 63.4
Equipment
Other
33.5
34.8
71.6
68.1
32.1
56.9
Total rent expense
$ 187.9
$ 175.5
$ 152.4
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:
Balance, beginning of year
$231.3
$226.2
Tax positions related to current year:
In Millions
Additions
38.5
23.8
2014
Tax positions related to prior years:
Additions
Reductions
Settlements
Lapses in statutes of limitations
Balance, end of year
69.6
(74.0)
(39.0)
(10.2)
$216.2
24.3
(13.4)
(6.6)
2015
2016
2017
2018
(23.0)
After 2018
$231.3
Total noncancelable future
lease commitments
Less: interest
Operating
Leases
$ 93.4
74.0
61.1
45.1
49.6
114.5
$ 437.7
Present value of obligations under capital leases
Capital
Leases
$ 1.8
1.5
0.7
0.2
—
—
$ 4.2
(0.2)
$ 4.0
Annual Report 2013
83
America, our product categories include super-premium
ice cream and frozen desserts, refrigerated yogurt, 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 and franchise fees are reported in
the region or country where the end customer is located.
In our Bakeries and Foodservice segment our product
categories include ready-to-eat cereals, snacks, refriger-
ated yogurt, unbaked and fully baked frozen dough prod-
ucts, 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 opera-
tors in many customer channels including foodservice,
convenience stores, vending, and supermarket bakeries.
Substantially all of this segment’s operations are located
in the United States.
Operating profit for these segments excludes
unallocated corporate items and restructuring,
impairment, and other exit costs. Unallocated corporate
items include corporate overhead expenses, variances
to planned domestic employee benefits and incentives,
contributions to the General Mills Foundation, 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.
These future lease commitments will be partially offset
by estimated future sublease receipts of approximately
$8.3 million. Depreciation on capital leases is recorded as
depreciation expense in our results of operations.
As of May 26, 2013, we have issued guarantees and
comfort letters of $356.3 million for the debt and other
obligations of consolidated subsidiaries, and guarantees
and comfort letters of $258.7 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-can-
celable operating leases, which totaled $437.7 million as
of May 26, 2013.
Contingencies We are party to various pending or threat-
ened legal actions in the ordinary course of our business.
In our opinion, there were no claims or litigation pending
as of May 26, 2013, that were reasonably likely to have a
material adverse effect on our consolidated financial posi-
tion 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 geo-
graphic region as follows: U.S. Retail, 59.7 percent of our
fiscal 2013 consolidated net sales; International, 29.3
percent of our fiscal 2013 consolidated net sales; and
Bakeries and Foodservice, 11.0 percent of our fiscal 2013
consolidated net sales.
Our U.S. Retail segment reflects business with a wide
variety of grocery stores, mass merchandisers, member-
ship stores, natural food chains, and drug, dollar and
discount chains operating throughout the United States.
Our product categories in this business segment include
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 prod-
ucts including granola bars, cereal, and soup.
Our International segment consists of retail and
foodservice businesses outside of the United States.
In Canada, our product categories include ready-to-eat
cereals, shelf stable and frozen vegetables, dry dinners,
refrigerated and frozen dough products, dessert and
baking mixes, frozen pizza snacks, refrigerated yogurt,
and grain and fruit snacks. In markets outside North
84
Healthy Growth
Our operating segment results were as follows:
The following table provides financial information by
In Millions
Net sales:
U.S. Retail
International
Fiscal Year
2013
2012
2011
$ 10,614.9 $ 10,480.2 $ 10,163.9
5,200.2
4,194.3 2,875.5
Bakeries and Foodservice
1,959.0
1,983.4 1,840.8
geographic area:
In Millions
Net sales:
Fiscal Year
2013
2012
2011
United States
$12,573.1 $12,462.1 $11,987.8
Non-United States
5,201.0
4,195.8
2,892.4
$ 17,774.1 $ 16,657.9 $ 14,880.2
Total
$17,774.1 $16,657.9 $14,880.2
Total
Operating profit:
U.S. Retail
International
$ 2,392.9 $ 2,295.3 $ 2,347.9
490.2
429.6 291.4
In Millions
Bakeries and Foodservice
314.6
286.7 306.3
Cash and cash equivalents:
Total segment operating profit
3,197.7
3,011.6 2,945.6
United States
Unallocated corporate items
326.1
347.6
184.1
Non-United States
Divestitures (gain)
—
—
(17.4)
Total
Restructuring, impairment,
and other exit costs
19.8
101.6
4.4
Operating profit
$ 2,851.8 $ 2,562.4 $ 2,774.5
In Millions
Net sales by class of similar products were as follows:
United States
Land, buildings, and equipment:
Fiscal Year
Total
2013
2012
2011
Non-United States
May 26,
2013
May 27,
2012
$ 26.9
$ 25.7
714.5
445.5
$ 741.4
$ 471.2
May 26,
2013
May 27,
2012
$ 2,752.7 $ 2,804.9
1,125.4
847.8
$ 3,878.1 $ 3,652.7
In Millions
Net sales:
Snacks
Yogurt
Cereal
NOTE 17. SUPPLEMENTAL INFORMATION
$ 3,024.0 $ 2,649.6 $ 2,371.9
2,908.4
2,595.7 1,625.1
2,889.2 2,935.2 2,812.6
The components of certain Consolidated Balance Sheet
accounts are as follows:
Convenient meals
2,802.9 2,611.8 2,437.6
Baking mixes and
ingredients
1,999.5 1,902.9 1,789.7
Dough
Vegetables
1,944.7 1,925.5 1,895.4
1,089.5 1,082.5 1,095.6
Super-premium ice cream
717.1
664.6
563.7
Other
Total
398.8
290.1 288.6
$ 17,774.1 $ 16,657.9 $ 14,880.2
In Millions
Receivables:
May 26,
2013
May 27,
2012
From customers
$ 1,466.3 $ 1,345.3
Less allowance for doubtful accounts
(19.9)
(21.7)
Total
In Millions
Inventories:
$ 1,446.4 $ 1,323.6
May 26,
2013
May 27,
2012
Raw materials and packaging
$
403.0 $ 334.4
Finished goods
Grain
Excess of FIFO over LIFO cost (a)
Total
1,228.7
1,211.8
135.6
155.3
(221.8)
(222.7)
$ 1,545.5 $ 1,478.8
(a) Inventories of $897.8 million as of May 26, 2013, and $930.2 million as of
May 27, 2012, were valued at LIFO. During fiscal 2013 and fiscal 2012, LIFO
inventory layers were reduced. Results of operations were not materially
affected by these liquidations of LIFO inventory. The difference between
replacement cost and the stated LIFO inventory value is not materially
different from the reserve for the LIFO valuation method.
Annual Report 2013
85
In Millions
May 26,
2013
May 27,
2012
In Millions
May 26,
2013
May 27,
2012
Prepaid expenses and other current assets:
Other current liabilities:
$193.1
$103.8
Accrued trade and consumer promotions $ 635.3 $ 560.7
primarily commodity-related
47.6
34.5
Accrued taxes
168.6
178.3
Accrued payroll
Dividends payable
Other receivables
Prepaid expenses
Derivative receivables,
Grain contracts
Miscellaneous
Total
In Millions
Land, buildings, and equipment:
Land
Buildings
Buildings under capital lease
Equipment
Equipment under capital lease
Capitalized software
Construction in progress
7.5
8.3
Accrued interest, including
20.8
33.2
interest rate swaps
$437.6
$358.1
Grain contracts
Restructuring and other exit costs reserve
May 26,
2013
May 27,
2012
Derivative payable
Miscellaneous
$ 101.2 $ 75.9
2,168.3
1,980.6
0.3
5,731.1
0.3
5,257.2
Total
In Millions
Other noncurrent liabilities:
9.0
9.0
Accrued compensation and benefits,
427.9
419.1
495.1
542.6
including obligations for underfunded
other postretirement
417.3
367.4
279.6
88.0
24.5
39.2
91.2
30.0
19.5
4.1
100.2
20.6
85.9
26.1
262.7
202.0
$1,827.7 $1,426.6
May 26,
2013
May 27,
2012
Total land, buildings, and equipment
8,932.9
8,284.7
and postemployment benefit plans
$1,560.2 $ 1,853.1
Less accumulated depreciation
Total
(5,054.8)
(4,632.0)
Accrued taxes
$3,878.1 $3,652.7
Miscellaneous
Total
277.1
230.9
115.6
105.8
$1,952.9 $ 2,189.8
In Millions
Other assets:
Investments in and advances
to joint ventures
Pension assets
Exchangeable note with related party
Life insurance
Miscellaneous
Total
May 26,
2013
May 27,
2012
Certain Consolidated Statements of Earnings amounts
are as follows:
In Millions
2013
2012
2011
Depreciation and amortization
$588.0
$541.5
$472.6
Research and development expense 237.9
245.4
235.0
Fiscal Year
Advertising and media expense
(including production and
communication costs)
$895.0
$913.7
$843.7
$478.5 $529.0
131.8
88.8
24.4
42.7
98.9
86.7
120.2
108.0
$843.7 $865.3
The components of interest, net are as follows:
Expense (Income), in Millions
2013
2012
2011
Fiscal Year
Interest expense
Capitalized interest
Interest income
Interest, net
$333.8
$370.7
$360.9
(4.3)
(12.6)
(8.9)
(9.9)
(7.2)
(7.4)
$316.9
$351.9
$346.3
86
Healthy Growth
Certain Consolidated Statements of Cash Flows
amounts are as follows:
In Millions
2013
2012
2011
Cash interest payments
$293.0
$344.3
$333.1
Cash paid for income taxes
569.4
590.6
699.3
Fiscal Year
NOTE 18. QUARTERLY DATA (UNAUDITED)
Summarized quarterly data for fiscal 2013 and fiscal 2012 follows:
In Millions, Except Per Share Amounts
2013
2012
2013
2012
2013
2012
2013
2012
First Quarter
Fiscal Year
Second Quarter
Fiscal Year
Third Quarter
Fiscal Year
Fourth Quarter
Fiscal Year
Net sales
Gross margin
Net earnings attributable
to General Mills
EPS:
Basic
Diluted
$4,051.0 $3,847.6
$4,881.8 $4,623.8
$4,430.6 $4,120.1
$4,410.7 $4,066.4
1,628.3 1,446.5
1,742.3 1,594.7
1,522.7 1,507.4
1,530.6 $1,496.1
548.9
405.6
541.6
444.8
398.4
391.5
366.3
325.4
$
$
0.84 $
0.63
0.82 $
0.61
$
$
0.84 $
0.69
0.82 $
0.67
$
$
0.61 $
0.61
0.60 $
0.58
$
$
0.57 $
0.49
0.55 $
0.49
Dividends per share
$ 0.330 $ 0.305
$ 0.330 $ 0.305
$ 0.330 $ 0.305
$ 0.330 $ 0.305
Market price of common stock:
High
Low
$ 39.13 $ 39.77
$ 40.77 $ 39.92
$ 45.67 $ 41.05
$ 50.93 $ 39.69
$ 37.55 $ 34.95
$ 38.89 $ 36.89
$ 40.06 $ 38.15
$ 45.42 $ 38.04
During the fourth quarter of fiscal 2013, we finalized the purchase accounting for certain assets and liabilities
related to the acquisition of Yoki. We recorded final adjustments that resulted in a $3.6 million decrease in goodwill.
During the fourth quarter of fiscal 2012, we finalized the purchase accounting for certain assets and liabilities
related to the acquisitions of Yoplait S.A.S. and Yoplait Marques S.A.S. We recorded final adjustments that resulted in
a $38.7 million decrease in goodwill.
Annual Report 2013
Glossary
87
AOCI. Accumulated other comprehensive income
(loss).
Average total capital. Notes payable, long-term debt
including current portion, redeemable interest, noncon-
trolling interests, and stockholders’ equity excluding
AOCI, and certain after-tax earnings adjustments are
used to calculate return on average total capital. The
average is calculated using the average of the beginning
of fiscal year and end of fiscal year Consolidated Balance
Sheet amounts for these line items.
Core working capital. Accounts receivable plus inven-
tories less accounts payable, all as of the last day of our
fiscal year.
Depreciation associated with restructured assets.
The increase in depreciation expense caused by updat-
ing the salvage value and shortening the useful life of
depreciable fixed assets to coincide with the end of pro-
duction under an approved restructuring plan, but only
if impairment is not present.
Derivatives. Financial instruments such as futures,
swaps, options, and forward contracts that we use to man-
age our risk arising from changes in commodity prices,
interest rates, foreign exchange rates, and stock prices.
Fair value hierarchy. For purposes of fair value mea-
surement, 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.
Fixed charge coverage ratio. The sum of earnings
before income taxes and fixed charges (before tax), divided
by the sum of the fixed charges (before tax) and interest.
Generally Accepted Accounting Principles (GAAP).
Guidelines, procedures, and practices that we are
required to use in recording and reporting accounting
information in our financial statements.
Goodwill. The difference between the purchase price
of acquired companies plus the fair value of any non-
controlling and redeemable interests and the related fair
values of net assets acquired.
Gross margin. Net sales less cost of sales.
Hedge accounting. Accounting for qualifying hedges
that allows changes in a hedging instrument’s fair value
to offset corresponding changes in the hedged item in
the same reporting period. Hedge accounting is permit-
ted for certain hedging instruments and hedged items
only if the hedging relationship is highly effective, and
only prospectively from the date a hedging relationship
is formally documented.
Interest bearing instruments. Notes payable, long-
term debt, including current portion, cash and cash
equivalents, and certain interest bearing investments
classified within prepaid expenses and other current
assets and other assets.
LIBOR. London Interbank Offered Rate.
Mark-to-market. The act of determining a value for
financial instruments, commodity contracts, and related
assets or liabilities based on the current market price for
that item.
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.
Net mark-to-market valuation of certain commod-
ity positions. Realized and unrealized gains and losses
on derivative contracts that will be allocated to segment
operating profit when the exposure we are hedging
affects earnings.
Level 3: Unobservable inputs reflecting management’s
assumptions about the inputs used in pricing
the asset or liability.
Net price realization. The impact of list and promoted
price changes, net of trade and other price promotion
costs.
88
Healthy Growth
New businesses. Our consolidated results for fiscal
2013 include operating activity from the acquisitions of
Yoki Alimentos S.A. in Brazil (second quarter of fiscal
2013), Yoplait Ireland (first quarter of fiscal 2013), Food
Should Taste Good in the United States (fourth quarter
of fiscal 2012), Parampara Foods in India (first quarter of
fiscal 2013), Immaculate Baking Company in the United
States (third quarter of fiscal 2013), and the assumption
of the Canadian Yoplait franchise license (second
quarter of fiscal 2013). Also included in the first quarter
of fiscal 2013 are two additional months of results
from the acquisition of Yoplait S.A.S. (first quarter of
fiscal 2012). Collectively, these items are referred to as
“new businesses” in comparing our fiscal 2013 results to
fiscal 2012.
Return on average total capital. Net earnings
attributable to General Mills, excluding after-tax net
interest, and adjusted for certain items affecting year-
over-year comparability, divided by average total capital.
Segment operating profit margin. Segment operating
profit divided by net sales for the segment.
Supply chain input costs. Costs incurred to produce
and deliver product, including costs for ingredients
and conversion, inventory management, logistics, and
warehousing.
Total debt. Notes payable and long-term debt, includ-
ing current portion.
Noncontrolling interests. Interests of subsidiaries
held by third parties.
Transaction gains and losses. The impact on our
Consolidated Financial Statements of foreign exchange
rate changes arising from specific transactions.
Notional principal amount. The principal amount on
which fixed-rate or floating-rate interest payments are
calculated.
OCI. Other comprehensive income (loss).
Operating cash flow to debt ratio. Net cash provided
by operating activities, divided by the sum of notes pay-
able and long-term debt, including current portion.
Redeemable interest. Interest of subsidiaries held by a
third party that can be redeemed outside of our control
and therefore cannot be classified as a noncontrolling
interest in equity.
Reporting unit. An operating segment or a business
one level below an operating segment
Translation adjustments. The impact of the conver-
sion of our foreign affiliates’ financial statements to U.S.
dollars for the purpose of consolidating our financial
statements.
Variable interest entities (VIEs). A legal structure
that is used for business purposes that either (1) does
not have equity investors that have voting rights and
share in all the entity’s profits and losses or (2) has
equity investors that do not provide sufficient financial
resources to support the entity’s activities.
Working capital. Current assets and current liabilities,
all as of the last day of our fiscal year.
Annual Report 2013
89
Non-Gaap Measures
This report includes measures of financial performance
that are not defined by generally accepted accounting
principles (GAAP). 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. These non-
GAAP measures are used in reporting to our executive
management and/or as a component of the board of
director’s measurement of our performance for incentive
compensation purposes. Management and the board
of directors believe that these measures provide useful
information to investors. These non-GAAP measures
should be viewed in addition to, and not in lieu of, the
comparable GAAP measure.
ToTal SegmenT o peraTing profiT
In Millions
Net sales:
U.S. Retail
International
2013
2012
2011
2010
2009
2008
Fiscal Year
$ 10,614.9 $ 10,480.2 $ 10,163.9 $ 10,209.8 $ 9,973.6 $ 9,028.2
5,200.2 4,194.3
2,875.5
2,684.9
2,571.8
2,535.5
Bakeries and Foodservice
1,959.0 1,983.4
1,840.8
1,740.9
2,010.4
1,984.3
Total
Operating profit:
U.S. Retail
International
Bakeries and Foodservice
Total segment operating profit
$ 17,774.1 $ 16,657.9 $ 14,880.2 $ 14,635.6 $ 14,555.8 $ 13,548.0
$ 2,392.9 $ 2,295.3 $ 2,347.9 $ 2,385.2 $ 2,206.6 $ 1,976.7
490.2
429.6
314.6
286.7
291.4
306.3
192.1
263.2
239.2
178.4
247.5
170.2
3,197.7 3,011.6
2,945.6
2,840.5
2,624.2
2,394.4
Memo: Segment operating profit as a % of net sales
18.0%
18.1%
19.8%
19.4%
18.0%
17.7%
Unallocated corporate items
Divestitures (gain), net
Restructuring, impairment, and other exit costs
326.1
347.6
184.1
203.0
—
—
19.8
101.6
(17.4)
4.4
—
31.4
342.5
(84.9)
41.6
144.2
—
21.0
Operating profit
$ 2,851.8 $ 2,562.4 $ 2,774.5 $ 2,606.1 $ 2,325.0 $ 2,229.2
adjuSTed diluTed epS, excluding cerTain iTemS affecTing comparabiliTy
Per Share Data
2013
2012
2011
2010
2009
2008
Fiscal Year
Diluted earnings per share, as reported
Mark-to-market effects (a)
Divestitures gain, net (b)
Gain from insurance settlement (c)
Tax items (d)
Acquisition integration costs (e)
Restructuring costs (f)
Diluted earnings per share, excluding
certain items affecting comparability
$2.79
$2.35
—
0.10
$2.70
(0.09)
$2.24
0.01
—
—
(0.13)
0.01
0.02
—
—
—
0.01
0.10
—
—
—
—
(0.13)
0.05
—
—
—
—
$1.90
0.11
(0.06)
(0.04)
0.08
—
—
$1.85
(0.05)
—
—
(0.04)
—
—
$2.69
$2.56
$2.48
$2.30
$1.99
$1.76
(a) See Note 7 to the Consolidated Financial Statements on page 58 of this report.
(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) The fiscal 2013 tax items consist of a reduction to income taxes related to the restructuring of our GMC subsidiary and an increase to income taxes related
to the liquidation of a corporate investment. Additionally, fiscal 2013 and fiscal 2010 include changes in deferred taxes associated with the Medicare Part
D subsidies related to the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010. The fiscal
2011, fiscal 2009 and fiscal 2008 tax items represent the effects of court decisions and audit settlements on uncertain tax matters.
(e) Integration costs resulting from the acquisitions of Yoki in fiscal 2013 and Yoplait S.A.S. and Yoplait Marques S.A.S. in fiscal 2012.
(f) See Note 4 to the Consolidated Financial Statements on page 54 of this report.
90
Healthy Growth
RetuRn on aveR age total capital
In Millions
2013
2012
2011
2010
2009
2008
Net earnings, including earnings attributable to
redeemable and noncontrolling interests
$ 1,892.5 $ 1,589.1 $ 1,803.5 $ 1,535.0 $ 1,313.7 $ 1,318.1
Interest, net, after-tax
201.2
238.9
243.5
261.1
240.8
263.8
Earnings before interest, after-tax
2,093.7
1,828.0
2,047.0
1,796.1
1,554.5
1,581.9
Fiscal Year
Mark-to-market effects
Tax items
Restructuring costs
Acquisition integration costs
Divestitures gain, net
Gain from insurance settlement
Earnings before interest, after-tax for
return on capital calculation
Current portion of long-term debt
Notes payable
Long-term debt
Total debt
Redeemable interest
Noncontrolling interests
Stockholders’ equity
Total capital
Accumulated other comprehensive
(income) loss
After-tax earnings adjustments (a)
Adjusted total capital
Adjusted average total capital
Return on average total capital
(2.8)
(85.4)
15.9
8.8
—
—
65.6
—
64.3
9.7
—
—
(60.0)
(88.9)
—
—
—
—
4.5
35.0
—
—
—
—
74.9
52.6
—
—
(38.0)
(26.9)
(35.9)
(30.7)
—
—
—
—
$ 2,030.2 $ 1,967.6 $ 1,898.1 $ 1,835.6 $ 1,617.1 $ 1,515.3
$ 1,443.3 $
599.7
741.2 $ 1,031.3 $
526.5
311.3
1,050.1
107.3 $
508.5 $
812.2
442.0
2,208.8
5,926.1
6,161.9
5,542.5
5,268.5
5,754.8
4,348.7
7,969.1
7,429.6
6,885.1
6,425.9
7,075.5
6,999.5
967.5
456.3
847.8
461.0
—
—
—
—
246.7
245.1
244.2
246.6
6,672.2
6,421.7
6,365.5
5,402.9
5,172.3
6,212.2
16,065.1
15,160.1
13,497.3
12,073.9
12,492.0
13,458.3
1,585.3
1,743.7
1,010.8
1,486.9
(234.4)
(170.9)
(310.5)
(161.6)
877.8
(201.1)
(173.1)
(263.7)
$ 17,416.0 $ 16,732.9 $ 14,197.6 $ 13,399.2 $ 13,168.7 $ 13,021.5
$ 17,074.5 $ 15,465.3 $ 13,798.4 $ 13,283.9 $ 13,095.1 $ 12,804.3
11.9%
12.7%
13.8%
13.8%
12.3%
11.8%
(a) Sum of current year and previous year after-tax adjustments.
Annual Report 2013
91
INTERNATIONAL SEGMENT AND REGION SALES
GROWTH RATES EXCLUDING IMPACT OF FOREIGN
EXCHANGE
The reconciliation of International segment and region
sales growth rates as reported to growth rates excluding
the impact of foreign currency exchange below
demonstrates the effect of foreign currency exchange
rate fluctuations from year to year. To present this
information, current-period results for entities reporting
in currencies other than U.S. dollars are converted into
U.S. dollars at the average exchange rates in effect during
the corresponding period of the prior fiscal year, rather
than the actual average exchange rates in effect during
the current fiscal year. Therefore, the foreign currency
impact is equal to current-year results in local currencies
multiplied by the change in the average foreign currency
exchange rates between the current fiscal period and
the corresponding period of the prior fiscal year.
Europe
Canada
Asia/Pacific
Latin America
Total International
Europe
Canada
Asia/Pacific
Latin America
Total International
Fiscal Year 2013
Percentage Change
in Net Sales
as Reported
Impact of Foreign
Currency Exchange
Percentage Change
in Net Sales
on Constant
Currency Basis
11%
22
11
116
24%
(4) pts
—
—
(23)
(4) pts
15%
22
11
139
28%
Fiscal Year 2012
Percentage Change
in Net Sales
as Reported
Impact of Foreign
Currency Exchange
Percentage Change
in Net Sales
on Constant
Currency Basis
84%
29
22
12
46%
1 pt
1
2
(2)
1 pt
83%
28
20
14
45%
92
Healthy Growth
Total Return to Stockholders
These line graphs compare the cumulative total return
for holders of our common stock with the cumulative
total return of the Standard & Poor’s 500 Stock Index
and Standard & Poor’s 500 Packaged Foods Index for
the last five-year and ten-year fiscal periods. The graphs
assume the investment of $100 in each of General Mills’
common stock and the specified indexes at the begin-
ning of the applicable period, and assume the reinvest-
ment of all dividends.
On June 30, 2013, there were approximately 33,300
record holders of our common stock.
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Total Return to Stockholders
5 Years
Total Return to Stockholders
5 Years
200
200
180
180
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
May 08
0
May 09
May 10
May 11
May 12
May 13
May 08
May 09
May 10
May 11
May 12
May 13
Total Return to Stockholders
10 Years
Total Return to Stockholders
10 Years
300
280
300
260
280
240
260
220
240
200
220
180
200
160
180
140
160
120
140
100
120
80
100
60
80
40
60
20
40
0
20
May 03 May 04 May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13
0
May 03 May 04 May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13
General Mills (GIS)
General Mills (GIS)
S&P 500
S&P 500
S&P Packaged Foods
S&P Packaged Foods
Annual Report 2013
93
94
Healthy Growth
Shareholder Information
Transfer Agent and Registrar
Our transfer agent can assist you
with a variety of services, including
change of address or questions about
dividend checks:
Wells Fargo Bank, N.A.
1110 Centre Pointe Curve
Mendota Heights, MN 55120-4100
Phone: (800) 670-4763 or
(651) 450-4084
WellsFargo.com/shareownerservices
Electronic Access to Proxy Statement,
Annual Report and Form 10-K
Shareholders who have access to the
Internet are encouraged to enroll in
the electronic delivery program. Please
see the Investors section of our website,
GeneralMills.com, or go directly to the
website, ICSDelivery.com/GIS and
follow the instructions to enroll. If your
General Mills shares are not registered
in your name, contact your bank or broker
to enroll in this program.
Notice of Annual Meeting
The annual meeting of shareholders will
be held at 10 a.m., Central Daylight Time,
Tuesday, Sept. 24, 2013, at the Children’s
Theatre Company, 2400 Third Avenue
South, Minneapolis, MN 55404-3597.
Proof of share ownership is required
for admission. Please refer to the Proxy
Statement for information concerning
admission to the meeting.
General Mills Direct Stock Purchase Plan
This plan provides a convenient and
economical way to invest in General Mills
stock. You can increase your ownership
over time through purchases of common
stock and reinvestment of cash dividends,
without paying brokerage commissions and
other fees on your purchases and reinvest-
ments. For more information and a copy of a
plan prospectus, go to the Investors section
of our website at GeneralMills.com.
World Headquarters
Number One General Mills Boulevard
Minneapolis, MN 55426-1347
Phone: (763) 764-7600
Website
GeneralMills.com
Markets
New York Stock Exchange
Trading Symbol: GIS
Independent Auditor
KPMG LLP
4200 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402-3900
Phone: (612) 305-5000
Investor Inquiries
General Shareholder Information:
Investor Relations Department
(800) 245-5703 or (763) 764-3202
Analysts/Investors:
Kris Wenker
(763) 764-2607
Visit Us on the Web
We have a variety of websites that appeal to consumers around the world.
Below is a selection of our most popular sites. For a more complete list,
see the “Our websites” page under the Company tab on GeneralMills.com.
U.S. Sites
Cheerios.com
Pillsbury.com
Yoplait.com
Larabar.com
BettyCrocker.com
Get recipes, cooking tips and view
instruction videos.
QueRicaVida.com
Recipes and nutritional information for
Hispanic consumers.
Tablespoon.com
Download coupons, recipes and more
for a variety of our brands.
Blog.GeneralMills.com
Get a unique perspective on recent
news and stories about our brands and
our company.
International Sites
HaagenDazs.com.cn (China)
Yoplait.net (France)
NatureValley.co.uk (United Kingdom)
OldElPaso.com.au (Australia)
LifeMadeDelicious.ca (Canada)
Get recipes, promotions and
entertaining ideas for many of
our brands.
BoxTops4Education.com
Sign up to support your school.
You also can visit many of our brands on
Facebook or follow us on Twitter.
LiveBetterAmerica.com
Simple ways to maintain a healthy lifestyle.
Our Fiscal 2013 Financial Highlights
Our Mission at General Mills Is Nourishing Lives
In millions, except per share and
return on capital data
Net Sales
Segment Operating Profita
Net Earnings Attributable to General Mills
Diluted Earnings per Share (EPS)
Adjusted Diluted EPS, Excluding Certain Items
Affecting Comparability b
52 weeks
ended
May 26, 2013
52 weeks
ended
May 27, 2012
$ 17,774
$ 16,658
3,198
1,855
2.79
3,012
1,567
2.35
2.69
2.56
Change
+ 7%
+ 6%
+ 18%
+ 19%
+ 5%
Return on Average Total Capitala
11.9%
12.7%
– 80 basis pts.
Average Diluted Shares Outstanding
666
667
Dividends per Share
$ 1.32
$ 1.22
– 0%
+ 8%
Net Sales
Dollars in millions
Segment Operating
Profita
Dollars in millions
Adjusted Diluted
Earnings per Shareb
Dollars
Dividends per Share
Dollars
4
7
7
,
7
1
8
5
6
,
6
1
6
5
5
,
4
1
6
3
6
,
4
1
0
8
8
,
4
1
8
4
5
,
3
1
8
9
1
,
3
2
1
0
,
3
6
4
9
,
2
0
4
8
,
2
4
2
6
,
2
4
9
3
,
2
9
6
.
2
6
5
.
2
8
4
.
2
0
3
.
2
9
9
.
1
6
7
.
1
2
3
.
1
2
2
.
1
2
1
.
1
6
9
.
0
6
8
.
0
8
7
.
0
08
09
10
11
12
13
08
09
10
11
12
13
08
09
10
11
12
13
08
09
10
11
12
13
a See page 89 for discussion of non-GAAP measures.
b Results exclude certain items affecting comparability. See page 89 for discussion of non-GAAP measures.
We believe that doing well for our
shareholders goes hand in hand
with doing well for our consumers,
our communities and our planet. Our
efforts include providing convenient,
nutritious food around the world,
building strong communities through
philanthropy and volunteerism, and
developing sustainable business
practices that reduce our environ-
mental footprint.
For a comprehensive overview
of our commitment to stand among
the most socially responsible food
companies in the world, see our Global
Responsibility Report available online
at GeneralMills.com/Responsibility.
Holiday Gift Boxes
General Mills Gift Boxes are a part of
many shareholders’ December holiday
traditions. To request an order form,
call us toll-free at (888) 496-7809 or
write, including your name, street
address, city, state, zip code and phone
number (including area code) to:
2013 General Mills Holiday Gift Box
Department 8907
P.O. Box 5013
Stacy, MN 55078-5013
Or you can place an order online at:
GMIHolidayGiftBox.com
Please contact us after
October 1, 2013.
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This Report Is Printed on Recycled Paper.
10%
©2013 General Mills
Number One General Mills Boulevard
Minneapolis, MN 55426-1347
GeneralMills.com
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Annual Report 2013
Healthy Growth
General
Mills