General Mills Annual Report 2016

Plain-text annual report

150 Years of Growth Branded Growth • Global Growth • Shareholder Value Growth General Mills 2016 Annual Report Left: Wheaties cereal print ad, 1939 Below: Gold Medal flour recipe book, 1907 Our Fiscal 2016 Financial Highlights In Millions, Except per Share, Profit Margin and Return on Capital Data 52 Weeks Ended May 29, 2016 53 Weeks Ended May 31, 2015 Net Sales $ 16,563 $ 17,630 Total Segment Operating Profit* $ 3,000 $ 3,035 Change on a Constant Currency Basis* – 2% + 1% Change – 6% – 1% Adjusted Operating Profit Margin* 16.8% 15.9% +90 basis points Net Earnings Attributable to General Mills $ 1,697 $ 1,221 Diluted Earnings per Share (EPS) $ 2.77 $ 1.97 + 39% + 41% Adjusted Diluted EPS, Excluding Certain Items Affecting Comparability* $ 2.92 $ 2.86 + 2% + 5% Adjusted Return on Average Total Capital* Average Diluted Shares Outstanding 11.3% 612 Dividends per Share $ 1.78 $ 1.67 11.2% +10 basis points +40 basis points 619 – 1% + 7% Net Sales (dollars in millions) Total Segment Operating Profit* (dollars in millions) Adjusted Diluted Earnings per Share* (dollars) (cid:364)(cid:362)(cid:363)(cid:364) (cid:364)(cid:362)(cid:363)(cid:365) (cid:364)(cid:362)(cid:363)(cid:366) (cid:364)(cid:362)(cid:363)(cid:367) (cid:364)(cid:362)(cid:363)(cid:368) $16,658 $17,774 $17,910 $17,630 $16,563 (cid:364)(cid:362)(cid:363)(cid:364) (cid:364)(cid:362)(cid:363)(cid:365) (cid:364)(cid:362)(cid:363)(cid:366) (cid:364)(cid:362)(cid:363)(cid:367) (cid:364)(cid:362)(cid:363)(cid:368) $3,012 $3,223 $3,154 $3,035 $3,000 (cid:364)(cid:362)(cid:363)(cid:364) (cid:364)(cid:362)(cid:363)(cid:365) (cid:364)(cid:362)(cid:363)(cid:366) (cid:364)(cid:362)(cid:363)(cid:367) (cid:364)(cid:362)(cid:363)(cid:368) $2.56 $2.72 $2.82 $2.86 $2.92 *See page 31 for a discussion of these non-GAAP measures. 150 Years of Growth General Mills is celebrating its 150th anniversary this year! From our grain-milling roots in the upper Midwest of the U.S., we have grown to become a global packaged food company that generates nearly $18 billion in annual sales with products available in more than 100 markets worldwide. We owe our longevity to our ability to adapt to a changing marketplace and, with our Consumer First strategy, we are excited about our prospects for growth for the next 150 years. General Mills at a Glance U.S. Retail Net Sales by Operating Unit International Net Sales by Region Convenience Stores and Foodservice Net Sales by Brand Type Joint Ventures Net Sales by Joint Venture (not consolidated, proportionate(cid:455)share) 13% 24% 15% 19% 23% 21% 20% 43% 22% 12% 18% 36% 52% 82% $10.0 Billion $4.6 Billion $1.9 Billion $1.0 Billion 24% Meals 23% Cereal 21% Snacks 43% Europe 22% Asia/Pacific 20% Canada 19% Baking Products 15% Latin America 13% Yogurt and Other 52% Branded to Foodservice Operators 36% Branded to Consumers 12% Unbranded 82% Cereal Partners Worldwide (CPW) 18% Häagen-Dazs Japan (HDJ) 2016 Annual Report 1 Ken Powell Chairman and Chief Executive Officer To Our Shareholders Total Shareholder Return (fiscal years, stock price appreciation plus reinvested dividends, compound annual growth) Fiscal 2016 was a milestone year for us at General 2016 Mills as we celebrated our 150th anniversary. During our history, we have introduced some of the most iconic food brands around the world. We’ve grown globally and now compete in more than 100 markets worldwide. And we’ve consistently delivered solid shareholder value. Our operating performance this year slightly exceeded our plan and we generated double-digit returns for our shareholders. And as our history shows, we are adaptable and are positioning ourselves well for future growth. 150 Years of Growth Our company began with a single flour mill built in 1866 on the banks of(cid:455)the Mississippi River in Minneapolis, Minn. Over the years, our business portfolio expanded to include a broad range of industries — from flour to apparel, from toys to restaurants — before refocusing on consumer foods in 1995. We’ve grown our company by developing and nurturing great brands that consumers trust. Our seven largest brands — Cheerios, Betty Crocker, Pillsbury, Nature Valley, Yoplait, Old El Paso and Häagen-Dazs— each generate more than $1(cid:455)billion in annual retail sales. Most of our brands hold the No. 1 or No. 2 share positions in their 2 General Mills 2% Latest 3 Years Latest 5 Years 15% 12% 11% 13% 12% General Mills S&P 500 Index Source: Bloomberg Dividends per Share (dollars) (cid:364)(cid:362)(cid:363)(cid:364) (cid:364)(cid:362)(cid:363)(cid:365) (cid:364)(cid:362)(cid:363)(cid:366) (cid:364)(cid:362)(cid:363)(cid:367) (cid:364)(cid:362)(cid:363)(cid:368) (cid:364)(cid:362)(cid:363)(cid:369) 1.22 1.32 1.55 1.67 1.78 1.92 New Annualized Rate categories, and they categories, and they’ve proven to be resilient as market conditions and(cid:455)consumer tastes have changed through the years. and(cid:455)consumer taste We’ve also grown by substantially increasing our global presence. We’ve also grown by Over the past decade alone, combined net sales for our consolidated Over the past decad International operations plus our 50- percent share of joint venture International operat revenues have more than doubled. Today, these businesses combined revenues have more generate nearly $6(cid:455)billion in international net sales, or about one third generate nearly $6 b of total company sales. We’ve been increasing our global footprint of total company sa by acquiring new brands in international markets and expanding our by acquiring new br current brands into more markets around the world. A great example current brands into is(cid:455)our recent introduction of Yoplait yogurt in China; you can read is(cid:455)our recent introdu about that on page 6 of this report. about that on page By driving branded growth and global growth, we’ve generated strong By driving branded g increases in shareholder value over time. General(cid:455)Mills incorporated increases in shareho in 1928 and began trading on the New York Stock Exchange (NYSE) in in 1928 and began t November of that year. As a matter of fact, General(cid:455)Mills is the 48th November of that ye longest-trading company of the 2,400(cid:455)companies currently listed on the longest-trading com NYSE. Delivering value to our shareholders has been the cornerstone NYSE. Delivering va of our existence, and dividends are a key part of that. General(cid:455)Mills of our existence, an and(cid:455)its predecessor firm have paid a dividend for 117 consecutive years. and(cid:455)its predecessor Over the past five fiscal years, our annual dividend has grown at a fi O 10(cid:455)percent compound rate. And our total shareholder return, which is a combination of stock price appreciation plus dividends, has consistently outperformed the broader market, generating double-digit returns over nearly any extended period of time. Fiscal 2016 was no exception as our shareholder return totaled 15(cid:455)percent, well ahead of the S&P 500(cid:455)Index. t fi th We attribute our longevity to our ability to adapt to changing consumer needs, and never has that been more vital than today as consumers’ food interests are evolving rapidly. Increasingly, consumers value simplicity in their food, often in the form of fewer, natural ingredients. They seek foods that meet their definition of wellness, which can mean more protein, more whole grains, or less sugar. And they’re snacking more than ever. Internationally, as the middle class grows around the world, consumer demand for convenient, great- tasting food is expanding. In fiscal 2016, we brought a variety of renovation and innovation news to our brands designed to leverage these changing consumer demands. Fiscal 2016 Performance General(cid:455)Mills net sales for the fiscal year ended May(cid:455)29, 2016, declined 6(cid:455)percent to $16.6(cid:455)billion, reflecting the sale of the Green Giant vegetable business in North America, foreign currency headwinds and(cid:455)a comparison to a 53-week fiscal year in 2015. Excluding the impact of foreign exchange, our net sales declined 2(cid:455)percent in fiscal 2016.* Total segment operating profit decreased 1(cid:455)percent to $3.0(cid:455)billion. On a constant- currency basis, total segment operating profit increased 1(cid:455)percent. Growing Our Core Growing Our Core Cereal Brands Cereal Brands Cheerios is the best-selling cereal Cheerios is the best-selling cereal franchise in the U.S. and Honey Nut franchise in the U.S. and Honey Nut Cheerios is the best-selling cereal. Cheerios is the best-selling cereal. In fiscal 2016, we made five of the top-selling Cheerios flavors gluten free, driving low single-digit retail sales growth on these varieties. We’ll transition two more Cheerios varieties to gluten free in fiscal 2017. More than half of U.S. consumers told us they want to avoid artificial colors and flavors. So we announced our commitment to remove artificial flavors and colors from artificial sources from all of our cereals. Today, 90(cid:454)percent of our cereals meet this claim, and we continue to work on the remainder of our portfolio. In addition, all of our cereals are free of high fructose corn syrup. By putting the consumer first, we saw improved retail sales trends for our U.S. cereals in fiscal 2016. 1941 Cheerios cereal was first introduced. Thirty-seven years later, we launched a second variety: Honey Nut Cheerios. *See page 31 for a reconciliation of this and other non-GAAP measures used in this letter. 2016 Annual Report 3 Convenience Stores and Foodservice Segment Operating Profit (fiscal years, dollars in millions) 2016 2009 19.7% $379 8.9% $178 Segment Operating Profit Profit Margin (operating profit divided by net sales) 1964 General Mills entered the snack food market with Bugles, Daisy*s and Whistles. In 1975, we introduced Nature Valley granola bars — and the country has been eating up our snacks ever since. International Growth by Geographic Region (fiscal 2016, dollars in millions) % Growth in Constant Currency* +3% +1% -4% +12% Net Sales $1,998 $996 $929 $709 $4,632 +3% Europe Asia/Pacific Canada Latin America Total International Diluted earnings per share increased 41(cid:455)percent to $2.77 in fiscal 2016.(cid:455)Adjusted diluted earnings per share, which excludes certain items affecting comparability of results, rose 2(cid:455)percent to $2.92. Excluding the impact of foreign exchange, adjusted diluted earnings per share increased 5(cid:455)percent. Net sales for U.S. Retail, our largest business segment, declined to $10.0(cid:455)billion, due in part to the divestiture of the Green Giant vegetable business and a comparison to last year’s 53-week fiscal year. As we saw consumer food preferences changing, we went to work to bring renovation and innovation news to many of our brands to drive growth. For example, we made product improvements to our Nature(cid:455)Valley snacks and brought gluten-free messaging to 20(cid:455)percent of the line. We introduced the Annie’s organic brand to new categories, including yogurt, soup and cereal. And we drove growth on many of our cereal brands with gluten-free messaging and the removal of artificial flavors and colors. In fiscal 2017, we’ll continue to innovate on(cid:455)our brands to drive sales growth for us and our categories. Our Convenience Stores and Foodservice segment had another year of solid results in fiscal 2016. While net sales declined 4(cid:455)percent, driven by market index pricing on bakery flour and the exit of some low- margin businesses last year, segment operating profit grew 7(cid:455)percent to a record $379(cid:455)million. These results reflect our continued focus on six key product platforms in growing foodservice channels: cereal, snacks, yogurt, mixes, biscuits and frozen meals. These priority businesses, which account for half of the segment’s sales and 70(cid:455)percent of the segment’s operating profit, posted combined net sales growth of 5(cid:455)percent for the year. Net sales for our International segment declined 10(cid:455)percent to $4.6(cid:455)billion, and segment operating profit declined 15(cid:455)percent, reflecting negative foreign currency translation effects. On a constant- currency basis, International net sales increased 3(cid:455)percent and segment operating profit declined 3(cid:455)percent. Net sales grew 12(cid:455)percent in Latin America, with good performance in Brazil, including the acquisition of Carolina yogurt in that market. Net sales increased 3(cid:455)percent in the Europe region as we posted good growth on Old(cid:455)El(cid:455)Paso Mexican products and Häagen-Dazs ice cream. Net sales in the Asia/Pacific region were up 1(cid:455)percent, led by double-digit sales growth in India. And net sales declined 4(cid:455)percent in Canada, driven by the divestiture of the Green Giant vegetable business in that(cid:455)market.* 4 General Mills *International net sales growth figures are in constant currency. See page 31 for a discussion of these non-GAAP measures. Reshaping Our Portfolio with More Natural & Organic Offerings Our natural and organic products generated $750 million in pro forma net sales in fiscal 2016, and given organic foods are projected to grow at a double-digit compound rate over the next five years, we are expanding our offerings to leverage this growing food trend. Since acquiring Annie’s foods in 2014, we’ve expanded this trusted brand into the soup, yogurt and cereal categories. We further increased our portfolio in fiscal 2016 with the addition of EPIC Provisions, a(cid:454)line of meat-based snacks. And this summer, Liberté yogurt will go organic. With net sales for our natural and organic offerings growing double digits in fiscal 2016, we are well on(cid:454)our(cid:454)way to our goal of reaching $1(cid:454)billion in net sales for this U.S. portfolio by 2019, a full year ahead of(cid:454)our original(cid:454)plan. In addition to these three operating segments, we hold 50- percent non- consolidated interests in two joint ventures outside of North America. Together, Cereal Partners Worldwide (CPW) and Häagen- Dazs Japan (HDJ) contributed $88(cid:455)million in after-tax earnings in 2016. This was 12(cid:455)percent above last year on a constant- currency basis, driven primarily by favorable input costs and strong sales performance from HDJ. In fiscal 2016, we returned $1.5(cid:455)billion to shareholders through share(cid:455)repurchases and dividends. We repurchased approximately 11(cid:455)million shares of common stock, reducing our average number of diluted shares outstanding by 1(cid:455)percent. We also increased our annual dividend by 7(cid:455)percent. In June 2016, we increased the quarterly dividend rate another 4(cid:455)percent. The new annualized rate of $1.92 per share represents a yield between 2.5 and 3(cid:455)percent at recent prices for General(cid:455)Mills stock. Our(cid:455)goal is to continue to increase dividends as earnings grow. Building for the Future At General(cid:455)Mills, we serve the world by making food people love. This(cid:455)has been our guiding purpose over the past 150 years and will continue to shape our company in the years ahead. We aspire to continued levels of strong growth for our brands and our company. Our goal is to create market- leading growth that will(cid:455)deliver top-tier returns to(cid:455)shareholders. General Mills Long-term Growth Model Growth Factor Net Sales Total Segment Operating Profit Compound Growth Rate Low single-digit Mid single-digit Adjusted Diluted Earnings per Share High single-digit Dividend Yield Total Return to Shareholders 2 to 3(cid:454)percent Double-digit 2016 Annual Report 5 We remain committed to our long-term growth model. We believe our businesses can generate low single-digit net sales growth, mid single-digit total segment operating profit growth and high single- digit growth in adjusted diluted earnings per share. When you add in a dividend yield of between 2 and 3(cid:455)percent, we should deliver double- digit returns to shareholders over the long term. As we enter fiscal 2017, we will build on our successes while maintaining our focus on our Consumer First strategy. Consumers are(cid:455)at the core of what we do. We work to gain a deep understanding of their needs and respond quickly to give them what they want. We’re(cid:455)also sharpening the way we think about our portfolio to make more strategic choices about our level of investments and expectations for growth across our businesses. We’ll manage three-quarters of our portfolio as Growth businesses, where we see the best opportunities for long-term growth. The remaining quarter of our portfolio consists of Foundation businesses. They deliver strong, consistent profit that helps fund topline growth initiatives. We will make selective investments in these businesses, focusing on strong(cid:455)returns. Keeping our Consumer First strategy and our Growth and Foundation designations in mind, we’re centering our efforts on four key priorities described below. Drive More from the Core Our core brands, like Cheerios, Pillsbury, Nature Valley, Häagen-Dazs and more, are the economic engines of our company, and we know(cid:455)that driving growth from these well- established brands tends to generate the best return for investors. Retail sales for our Nature Valley grain snacks in the U.S. grew 3(cid:455)percent in fiscal 2016 as we introduced new varieties of this 40-year-old brand and also made our crunchy bars easier to bite. Retail sales for Old El Paso Mexican meals have been growing in markets around the world as we offer more innovation and(cid:455)convenience. Our Häagen-Dazs super- premium ice cream bars have been a(cid:455)big hit with European consumers, driving 10(cid:455)percent retail sales growth for the brand in Europe. And 6 General Mills Expanding Yogurt Around the World With its health profile and great taste, yogurt is a fast-growing food around the world, and Yoplait is the No.(cid:454)2 global yogurt brand. In fiscal 2016, we launched Yoplait yogurt in Shanghai, China, and the results have been strong. In the last quarter of 2016, Yoplait garnered a 10(cid:454)percent share of the yogurt category in Shanghai, and we have our sights set on continued expansion in the $16(cid:454)billion yogurt category in China. We’re also expanding our portfolio of yogurt brands. Last fall, we acquired the Carolina yogurt business in Brazil. The Brazilian yogurt category generates $5 billion in annual sales, and we see great opportunity for further expansion of the many yogurt varieties marketed under the Carolina(cid:454)brand. 1983 Pillsbury acquired the Häagen-Dazs ice cream brand from businessman Reuben Mattus who dreamt up the brand name back in(cid:455)1961. Funding Our Future with a Rectangular Pizza Totino’s is a leading brand in the $4(cid:454)billion frozen pizza category in the(cid:454)U.S. On any given day, we can produce more than 1 million pizzas, so we thought our manufacturing process was already very efficient until we asked the question “Does a pizza have to be round?” By changing to a rectangular shape, we’ve identified significant costs savings while maintaining the value and quality of the product. The new rectangular pizzas come in a plastic overwrap instead of a paperboard carton. This change reduces packaging costs and waste and also allows us to put more pizzas on a truck, reducing transportation costs. In addition to cost savings, we’re also decreasing the environmental impact with less packaging waste and reduced emissions from fewer trucks on the(cid:454)road. the Pillsbury brand has been growing in U.S. schools as we added mini-bagels and cheesy pull- aparts to our line of frozen meals designed for school(cid:455)cafeterias. Funding Our Future We believe creating superior long-term shareholder value requires a(cid:455)balance of growth and returns. We have a long history of funding our(cid:455)future by generating cost savings we use to invest in topline growth-driving ideas while still expanding our margins. Through Holistic Margin Management (HMM), we are removing non-value adding costs across the company. We are well on our way to generating a cumulative $4(cid:455)billion in cost-of-goods savings over the decade ending in 2020. In the past two years, we have implemented additional cost savings initiatives to streamline our global supply chain and restructure our organization. These additional initiatives have delivered $350(cid:455)million in annual savings through 2016, and we expect them to deliver $600(cid:455)million in total annual savings by fiscal 2018. These efforts, along with our sharpened focus on strategic investments across our portfolio going forward, will help us achieve our goal of an adjusted operating profit margin of 20(cid:455)percent by fiscal(cid:455)2018. Reshaping Our Portfolio We’re acquiring and divesting products to increase the growth profile of(cid:455)our businesses. We’re also getting our brands into the fastest- growing outlets where people buy food and expanding into new geographies to reach more consumers around the world. In fiscal 2016, we divested our Green Giant vegetable business in the U.S. and Canada. We expanded our international portfolio with the acquisition of Carolina yogurt in Brazil, and see page(cid:455)5 for how we’re increasing our natural and organic product portfolio. Building an Advantaged and Agile Organization We are developing new capabilities throughout our organization to enable growth in a rapidly changing marketplace. We’re integrating Consumer First principles into our innovation process to drive faster, 2016 Annual Report 7 Fiscal 2016 Net Sales by Platform Cereal Snacks Yogurt Convenient Meals Super-premium Ice Cream Dough Baking Mixes and Ingredients Vegetables Other more successful product introductions. We’re also investing in e-commerce capabilities to capture growth from this emerging channel. And we’re adopting new tools such as net revenue management to optimize our promotions, prices and mix of products to(cid:455)drive sales(cid:455)growth. Our employees are at the heart of our organization. Their skills and commitment give me confidence we will achieve our performance goals. We also are guided by an experienced and diverse board of directors. I’d like to acknowledge the contributions of Mike Rose and Paul Danos who are retiring from our board in September. They have provided invaluable advice and counsel during their combined 39 years of service to our company. I’d also like to recognize Dave Dudick, Senior Vice President; President, Canada, who retired this summer after a distinguished 36-year career with General Mills. In closing, I want to thank you for your investment in General Mills. Through our Consumer First strategy and our four key priorities, we are committed to driving solid returns for you, our shareholders. We(cid:455)appreciate your confidence in our plans for growth, and we look forward to reporting on our continued strong performance for the next 150 years. Kendall J. Powell Chairman and Chief Executive Officer August(cid:455)1, 2016 3% 1% 10% 20% $17.6 BILLION* 19% 10% 5% 16% 16% Our Business Portfolio is a Strategic Advantage We’re focused on five global growth categories — cereal, snacks, yogurt, convenient meals and ice cream. According to Euromonitor, retail sales in these categories are projected to grow at attractive rates because they are on-trend with consumers’ food interests. More than 75(cid:454)percent of our worldwide net sales are concentrated in these five platforms, and we see strong opportunities to leverage our technical know-how to grow our leading brands in these categories. * Non-GAAP measure. Includes $16.6 billion consolidated net sales plus $0.8 billion proportionate share of CPW (cereal) net sales plus $0.2 billion proportionate share of HDJ (ice cream) net sales. 8 General Mills Financial Review Contents Financial Summary Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Non-GAAP Measures 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 Acquisition and Divestitures 4 Restructuring, Impairment, and Other Exit Costs 5 Investments in Unconsolidated 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 Total Return to Stockholders 10 12 13 31 41 43 47 47 50 51 54 54 56 65 66 67 69 71 72 78 80 81 82 84 85 87 2016 Annual Report 9 Financial Summary Margin Expansion Helps Fund Our Future For the past several years, we have been increasing our productivity and efficiency to offset input cost inflation and fuel our Consumer(cid:455)First initiatives. While input cost inflation slowed to 2(cid:455)percent in fiscal 2016 from an average of 4 to 5(cid:455)percent over the previous five years, we still expect costs to remain inflationary for the foreseeable future. Holistic Margin Management (HMM) is our company-wide initiative to use productivity savings, mix management and price realization to offset input cost inflation, protect margins and generate funds to reinvest in sales- generating activities. Due to HMM, we’ve been able to hold our adjusted gross margin relatively steady over the past five years, and we have a strong pipeline of additional HMM cost- savings opportunities ahead. Last year, we took additional actions to increase our efficiency and generate cost savings. Projects Century, Catalyst and Compass were implemented to streamline our global supply chain and restructure our organization. We also implemented zero-based budgeting, which drove further administrative cost savings. These initiatives combined generated $350(cid:455)million in total annual savings through fiscal 2016. We(cid:455)expect them to deliver $600(cid:455)million in total annual savings by 2018, which is a $100(cid:455)million increase over our previous target. In addition, we are sharpening our focus in fiscal 2017 to accelerate our margin expansion efforts, building on our success from fiscal 2016 when we grew our adjusted operating profit margin by 90(cid:455)basis points.* All told, our goal is to achieve an adjusted operating profit margin of 20(cid:455)percent by fiscal 2018. Generating Cash Our businesses have a long history of strong cash generation. In fiscal 2016, our cash flow from operations totaled $2.6(cid:455)billion, up 3(cid:455)percent from last year. Our free cash flow, which is operating cash flow less capital expenditures, was $1.9(cid:455)billion in fiscal 2016, a 4(cid:455)percent increase over the previous year. We have a goal of converting 95(cid:455)percent of our adjusted after-tax earnings to free cash on(cid:455)a long-term basis. Our rolling three-year cumulative free cash flow has improved substantially, and we exceeded our goal in the most recent three-year period with a conversion rate of 102(cid:455)percent. Our continued discipline on core working capital, which is accounts receivable plus inventories less accounts payable, has contributed to our operating cash flow. In fiscal 2016, we reduced our core working capital 41(cid:455)percent versus last year’s fourth quarter, primarily due to operational improvements across our business as well as the divestiture of the Green Giant vegetable business in North America. We have now posted year-over-year reductions in our core working capital for 13(cid:455)consecutive quarters. 10 General Mills Adjusted Operating Profit Margin* (percent of net sales) (cid:364)(cid:362)(cid:363)(cid:364) (cid:364)(cid:362)(cid:363)(cid:365) (cid:364)(cid:362)(cid:363)(cid:366) (cid:364)(cid:362)(cid:363)(cid:367) (cid:364)(cid:362)(cid:363)(cid:368) 16.7% 16.3% 16.2% 15.9% 16.8% Cash Flow From Operations (dollars in millions) 2012 2013 2014 2015 2016 Free Cash Flow* (dollars in millions) (cid:364)(cid:362)(cid:363)(cid:364) (cid:364)(cid:362)(cid:363)(cid:365) (cid:364)(cid:362)(cid:363)(cid:366) (cid:364)(cid:362)(cid:363)(cid:367) (cid:364)(cid:362)(cid:363)(cid:368) Core Working Capital (dollars in millions) (cid:364)(cid:362)(cid:363)(cid:364) (cid:364)(cid:362)(cid:363)(cid:365) (cid:364)(cid:362)(cid:363)(cid:366) (cid:364)(cid:362)(cid:363)(cid:367) (cid:364)(cid:362)(cid:363)(cid:368) 729 2,407 2,926 2,541 2,543 2,630 1,731 2,312 1,878 1,830 1,900 1,654 1,569 1,432 1,244 Fixed Asset Investment (percent of net sales) Uses of Cash Our first priority for our cash is investment in growth opportunities and cost- savings projects we’ve identified across our businesses. In(cid:455)fiscal 2016, fixed asset investments totaled $729(cid:455)million, largely in line with our long-term target of 4(cid:455)percent of net sales. In fiscal 2017, we expect capital expenditures to be comparable to 2016 levels as we continue to(cid:455)fund Project Century and other projects to increase our efficiency. After capital investment, we prioritize cash returns to shareholders through dividends and share repurchases. Cash dividends to shareholders totaled nearly $1.1(cid:455)billion in fiscal 2016. Since fiscal 2012, our dividends per share have grown at a 10(cid:455)percent compound rate. In(cid:455)June 2016, our board of directors approved an increase to our quarterly dividend rate, effective with the August 2016 payment. The new annualized dividend rate of $1.92 per share represents an 8(cid:455)percent increase over the(cid:455)annual dividend paid in fiscal 2016. And this marks the eighth increase in our quarterly dividend rate since 2010. General Mills and its predecessor firm have paid regular dividends for 117 years. Our goal is to continue increasing dividends over time, in line with our earnings growth. We also return cash to shareholders through share repurchases. Net(cid:455)share repurchases in fiscal 2016 totaled $435(cid:455)million. We reduced average net shares outstanding by 1(cid:455)percent, slightly below our long- term share(cid:455)reduction target of 2(cid:455)percent, as we had higher cash needs for capital investment related to restructuring activities in fiscal 2016. For(cid:455)fiscal 2017, we are targeting a net reduction of 1 to 2(cid:455)percent in average diluted shares outstanding. Our goal is to return 90(cid:455)percent of our free cash flow to shareholders through dividends and share repurchases. Over the past several years, we have exceeded that goal with more than 100(cid:455)percent of free cash flow returned to shareholders between fiscal 2014 and 2016. Net income growth and disciplined uses of cash are the drivers of increasing adjusted returns on average total capital (ROC). General Mills adjusted ROC has declined in recent years, primarily due to the acquisitions of Yoplait International, Yoki and Annie’s. In fiscal 2016, we saw an increase in adjusted ROC over the previous year, due to earnings growth and continued prudent capital management. (cid:364)(cid:362)(cid:363)(cid:364) (cid:364)(cid:362)(cid:363)(cid:365) (cid:364)(cid:362)(cid:363)(cid:366) (cid:364)(cid:362)(cid:363)(cid:367) (cid:364)(cid:362)(cid:363)(cid:368) Dividends Paid (dollars in millions) (cid:364)(cid:362)(cid:363)(cid:364) (cid:364)(cid:362)(cid:363)(cid:365) (cid:364)(cid:362)(cid:363)(cid:366) (cid:364)(cid:362)(cid:363)(cid:367) (cid:364)(cid:362)(cid:363)(cid:368) 4.1% 3.4% 3.7% 4.0% 4.4% 800 868 983 1,018 1,072 Average Diluted Shares Outstanding (shares in millions) (cid:364)(cid:362)(cid:363)(cid:364) (cid:364)(cid:362)(cid:363)(cid:365) (cid:364)(cid:362)(cid:363)(cid:366) (cid:364)(cid:362)(cid:363)(cid:367) (cid:364)(cid:362)(cid:363)(cid:368) 667 666 646 619 612 Adjusted Return on Average Total Capital* (percent) (cid:364)(cid:362)(cid:363)(cid:364) (cid:364)(cid:362)(cid:363)(cid:365) (cid:364)(cid:362)(cid:363)(cid:366) (cid:364)(cid:362)(cid:363)(cid:367) (cid:364)(cid:362)(cid:363)(cid:368) 12.7% 12.0% 11.6% 11.2% 11.3% * See page 31 for a reconciliation of this and other non-GAAP measures used in this summary. 2016 Annual Report 11 Selected Financial Data Th e following table sets forth selected ﬁ nancial data for each of the ﬁ scal years in the ﬁ ve-year period ended May 29, 2016: In Millions, Except Per Share Data, Percentages and Ratios 2016 2015 (a) 2014 2013 2012 Fiscal Year Operating data: Net sales Gross margin (b) Selling, general, and administrative expenses Operating proﬁ t Total segment operating proﬁ t (c) Divestitures (gain) $ 16,563.1 $ 17,630.3 $ 17,909.6 $ 17,774.1 $ 16,657.9 5,829.5 5,949.2 6,369.8 6,423.9 6,044.7 3,118.9 3,328.0 3,474.3 3,552.3 3,380.7 2,707.4 2,077.3 2,957.4 2,851.8 2,562.4 2,999.5 3,035.0 3,153.9 3,222.9 3,011.6 (148.2) — (65.5) — — Net earnings attributable to General Mills 1,697.4 1,221.3 1,824.4 1,855.2 1,567.3 Advertising and media expense Research and development expense Average shares outstanding: Diluted Earnings per share: 754.4 222.1 823.1 229.4 869.5 243.6 895.0 237.9 913.7 245.4 611.9 618.8 645.7 665.6 666.7 $ Diluted Diluted, excluding certain items aﬀ ecting comparability (c) $ Operating ratios: 2.77 2.92 $ $ 1.97 2.86 $ $ 2.83 2.82 $ $ 2.79 2.72 $ $ 2.35 2.56 Gross margin as a percentage of net sales 35.2% 33.7% 35.6% 36.1% 36.3% Selling, general, and administrative expenses as a percentage of net sales Operating proﬁ t as a percentage of net sales Adjusted operating proﬁ t as a percentage of net sales (b) (c) Total segment operating proﬁ t as a percentage of net sales (c) Eﬀ ective income tax rate Return on average total capital (b) Adjusted return on average total capital (b) (c) Balance sheet data: 18.8% 16.3% 18.9% 11.8% 19.4% 16.5% 20.0% 16.0% 20.3% 15.4% 16.8% 15.9% 16.2% 16.3% 16.7% 18.1% 31.4% 12.9% 11.3% 17.2% 33.3% 9.1% 11.2% 17.6% 33.3% 12.5% 11.6% 18.1% 29.2% 13.4% 12.0% 18.1% 32.1% 12.8% 12.7% Land, buildings, and equipment $ 3,743.6 $ 3,783.3 $ 3,941.9 $ 3,878.1 $ 3,652.7 Total assets Long-term debt, excluding current portion Total debt (b) Cash ﬂ ow data: 21,712.3 21,832.0 23,044.7 22,505.7 21,014.8 7,057.7 7,575.3 6,396.6 5,901.8 6,139.5 8,430.9 9,191.5 8,758.9 7,944.8 7,407.2 Net cash provided by operating activities $ 2,629.8 $ 2,542.8 $ 2,541.0 $ 2,926.0 $ 2,407.2 Capital expenditures Free cash ﬂ ow (b) (c) Fixed charge coverage ratio (b) Operating cash ﬂ ow to debt ratio (b) Share data: Low stock price High stock price Closing stock price Cash dividends per common share 729.3 712.4 663.5 613.9 675.9 1,900.5 1,830.4 1,877.5 2,312.1 1,731.3 7.40 31.2% 5.54 27.7% 8.04 29.0% 7.62 36.8% 6.26 32.5% $ 54.12 $ 48.86 $ 46.86 $ 37.55 $ 65.36 62.87 1.78 57.14 56.15 1.67 54.40 53.81 1.55 50.93 48.98 1.32 34.95 41.05 39.08 1.22 Number of full- and part-time employees 39,000 42,000 43,000 41,000 34,500 (a) Fiscal 2015 was a 53-week year; all other ﬁ scal years were 52 weeks. (b) See “Glossary” on page 85 of this report for deﬁ nition. (c) See “Non-GAAP Measures” on page 31 of this report for our discussion of this measure not deﬁ ned by generally accepted accounting principles. 12 General Mills 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 core products and to create new products that meet consumers’ evolving needs and preferences. In addition, we build the equity of our brands over time with strong consumer-directed marketing, innovative new products, and eﬀ ective merchandising. We believe our brand-building strategy is the key to winning and sustaining leading share positions in markets around the globe. Our fundamental ﬁ nancial goal is to generate supe- rior returns for our shareholders over the long term. We believe that increases in net sales, segment oper- ating proﬁ t, earnings per share (EPS), free cash ﬂ ow conversion, cash return to shareholders, and return on average total capital are key drivers of ﬁ nancial perfor- mance for our business. Our long-term growth objectives are to consistently deliver: • low single-digit annual growth in net sales; • mid single-digit annual growth in total segment oper- ating proﬁ t; • high single-digit annual growth in diluted EPS exclud- ing certain items aﬀ ecting comparability; • improvement in adjusted return on average total capital; • free cash ﬂ ow conversion averaging above 95 percent of adjusted net earnings aft er tax; and • cash return to shareholders averaging above 90 per- cent of free cash ﬂ ow, including an attractive divi- dend yield. We believe that this ﬁ nancial performance should result in long-term value creation for shareholders. Fiscal 2016 was an important step toward return- ing to our long-term growth objectives. Our U.S. Retail segment improved its operating proﬁ t performance in ﬁ scal 2016, excluding the impact of acquisitions and divestitures, primarily the North American Green Giant business (Green Giant) divestiture and 6 incremen- tal months of results from the acquisition of Annie’s, Inc. (Annie’s). Net sales as reported declined 5 percent- age points in ﬁ scal 2016, which included 2 percentage points of decline from the net impact of Green Giant and Annie’s and 1 percentage point of decline from a 53rd week in ﬁ scal 2015. While net sales growth did not meet our expectations, operating proﬁ t increased 1 percent, despite the 53rd week in ﬁ scal 2015 and the net unfavorable impact of the Green Giant dives- titure and Annie’s acquisition. Operating proﬁ t for the Convenience Stores and Foodservice segment increased 7 percent, driven primarily by our 6 priority prod- uct platforms. Operating results for the International segment had good growth in developed markets that was tempered by slowdowns in developing markets. International net sales as reported declined 10 percent, including 1 percentage point of decline from the dives- titure of Green Giant, our Venezuela business, and our foodservice business in Argentina, but grew 3 percent on a constant-currency basis. International segment operating proﬁ t declined 15 percent and was impacted by 12 percentage points of unfavorable foreign currency exchange and slowing economic growth in China and Brazil, as well as the eﬀ ect of divestitures. Our consolidated net sales for ﬁ scal 2016 declined 6 percent to $16.6 billion, primarily driven by unfavor- able foreign exchange, a 53rd week in ﬁ scal 2015, and the net impact of acquisitions and divestitures. On a constant-currency basis, net sales decreased 2 percent. Operating proﬁ t of $2.7 billion increased 30 percent. Total segment operating proﬁ t of $3.0 billion declined 1 percent and grew 1 percent on a constant-currency basis. Diluted EPS increased 41 percent to $2.77 per share. Adjusted diluted EPS, which excludes certain items aﬀ ecting comparability of results, rose 2 percent to $2.92 per share and increased 5 percent on a con- stant-currency basis. Our return on average total capital was 12.9 percent, and return on adjusted average total capital increased 10 basis points to 11.3 percent. (See the “Non-GAAP Measures” section below for discussion of total segment operating proﬁ t, adjusted diluted EPS, constant-currency net sales growth rates, constant-cur- rency International segment net sales growth rate, con- stant-currency total segment operating proﬁ t growth rate, constant-currency adjusted diluted EPS growth rate, and adjusted return on average total capital, which are not deﬁ ned by generally accepted accounting prin- ciples (GAAP)). Net cash provided by operations totaled $2.6 billion in ﬁ scal 2016 at a conversion rate of 151 percent of net earnings, including earnings attributable to redeem- able and noncontrolling interests. Th is cash generation supported capital investments totaling $729 million, and our resulting free cash ﬂ ow was $1.9 billion at a conversion rate of 104 percent of adjusted net earn- ings, including earnings attributable to redeemable and 2016 Annual Report 13 noncontrolling interests. We also returned signiﬁ cant cash to shareholders through a 7 percent dividend increase and share repurchases totaling $607 mil- lion. Total cash returned to shareholders represented 79 percent of our free cash ﬂ ow (see the “Non-GAAP Measures” section below for a description of our use of measures not deﬁ ned by GAAP). We recorded the following achievements related to our other key operating objectives for ﬁ scal 2016: • We took steps to reshape our business portfolio to drive future growth with the divestiture of our North American Green Giant vegetable business and two smaller divestures, the Venezuela canned meat business and the foodservice dough business in Argentina. We also acquired EPIC Provisions LLC (Epic), broadening our product oﬀ erings in our U.S. natural and organic portfolio to include meat snacks, and we entered the growing Brazilian yogurt market through the acquisi- tion of Laticinios Carolina Ltda. (Carolina). • We generated strong levels of supply chain productiv- ity savings in ﬁ scal 2016 through our ongoing Holistic Margin Management (HMM) eﬀ orts. We also continued to execute our cost savings and organizational initiatives during the ﬁ scal year. We expanded Project Century, an initiative to streamline our North American distribution and manufacturing network, to our International seg- ment supply chain. We also initiated Project Compass, with a focus on increasing the agility and eﬀ ectiveness of our International segment. Finally, we continued to realize beneﬁ ts from Project Catalyst, a ﬁ scal 2015 restructuring plan to increase organizational eﬀ ective- ness and reduce overhead expense. In aggregate, the ini- tiatives taken in ﬁ scal 2015 and 2016 generated almost $350 million in cost savings during ﬁ scal 2016. A detailed review of our ﬁ scal 2016 performance appears below in the section titled “Fiscal 2016 Consolidated Results of Operations.” With strong savings in Fiscal 2016 and visibility to further savings over the next two years, we now expect our previously announced organizational restructur- ing and cost-reduction initiatives, including Projects Century, Catalyst, and Compass, as well as administra- tive cost reductions, to generate total annual savings of $600 million by ﬁ scal 2018. We are also undertaking further eﬀ orts to prioritize investments, reduce com- plexity, and streamline our operations to drive proﬁ table sales growth. As a result, we are increasing and accel- erating our adjusted operating proﬁ t margin expan- sion target. We expect to achieve an adjusted operating 14 General Mills proﬁ t margin of 20 percent by ﬁ scal 2018, an increase of 400 basis points over ﬁ scal 2015 levels. Key drivers of margin expansion over the next two years will include: • Strong levels of HMM productivity gains; • Continuing savings from previously announced cost-reduction initiatives; • Increased eﬃ ciency and prioritization of commercial investments, including trade and consumer spending; • Continuing focus on complexity reduction through SKU optimization; • Further supply chain optimization; and • Continued expansion of zero-based budgeting across the business. We will focus our ﬁ scal 2017 and ﬁ scal 2018 growth investments on our brands and platforms with the strongest proﬁ table growth potential, including: • In the U.S. Retail segment – Cereal, snack bars, the natural and organic portfolio, hot snacks, Mexican products, and yogurt; • Our International segment; • In the Convenience Stores and Foodservice segment – Cereal, yogurt, snacks, frozen meals, biscuits, and bak- ing mixes – the segment’s current Focus 6 platforms. Net sales for these “growth” businesses, which com- prise 75 percent of total company net sales and a simi- lar proportion of operating proﬁ t, are expected to grow at a low single-digit organic rate in ﬁ scal 2017. In our “foundation” businesses, which comprise the remainder of the portfolio, we will only pursue selective growth investments and will focus on reducing SKU complex- ity, optimizing commercial investments, and prioritiz- ing proﬁ table volume while making selective Consumer First investments. We expect organic net sales to decline mid single-digits for these businesses in ﬁ scal 2017. With this focused approach, we expect: • Fiscal 2017 organic net sales growth ranging from ﬂ at to down 2 percent compared to ﬁ scal 2016, but deliver a 6 to 8 percent increase in constant-currency total seg- ment operating proﬁ t. • Fiscal 2017 adjusted operating profit margin to increase by approximately 150 basis points; and • Constant-currency adjusted diluted EPS to grow 6 to 8 percent from the base of $2.92 earned in ﬁ scal 2016. Our ﬁ scal 2017 plans call for continued strong cash returns to shareholders. Th e current annualized divi- dend rate of $1.92 per share is up 8 percent from the annual dividend paid in ﬁ scal 2016. Share repurchases in ﬁ scal 2017 are expected to result in a net reduction in average diluted shares outstanding of approximately 1 to 2 percent. Th e foregoing non-GAAP forward-looking ﬁ nancial measures are not reconcilable to the equivalent GAAP measure because we cannot accurately predict the excluded variables that may impact these measures. Certain terms used throughout this report are deﬁ ned in a glossary on page 85 of this report. FISCAL 2016 CONSOLIDATED RESULTS OF OPERATIONS Fiscal 2016 had 52 weeks compared to 53 weeks in ﬁ s- cal 2015. Included in ﬁ scal 2016 is an additional month of results from Annie’s and Yoplait SAS (please refer to Note 1 to the Consolidated Financial Statements on page 47 of this report). Fiscal 2016 net sales declined 6 percent to $16,563 million and decreased 2 percent on a constant-currency basis. Operating proﬁ t of $2,707 million was 30 percent higher than ﬁ scal 2015. Total segment operating proﬁ t was $3,000 million, 1 percent lower than ﬁ scal 2015 and 1 percent higher on a constant-currency basis. In ﬁ scal 2016, net earnings attributable to General Mills were $1,697 million, up 39 percent from $1,221 million in ﬁ s- cal 2015, and we reported diluted EPS of $2.77 in ﬁ s- cal 2016, up 41 percent from $1.97 in ﬁ scal 2015. Fiscal 2016 results include restructuring-related charges, a net gain from divestitures, and gains from the mark-to- market valuation of certain commodity positions and grain inventories. Fiscal 2015 results include restructur- ing-related charges, an indeﬁ nite-lived intangible asset impairment charge, tax impacts from the repatriation of historical foreign earnings, losses from the mark-to- market valuation of certain commodity positions and grain inventories, integration costs resulting from the acquisition of Annie’s, and the impact of Venezuela cur- rency devaluation. Diluted EPS excluding these items aﬀ ecting comparability totaled $2.92 in ﬁ scal 2016, up 2 percent from $2.86 in ﬁ scal 2015. Diluted EPS excluding certain items aﬀ ecting comparability on a constant-cur- rency basis increased 5 percent compared to fiscal 2015 (see the “Non-GAAP Measures” section below for a description of our use of measures not deﬁ ned by GAAP). Net sales declined 6 percent to $16,563 million in ﬁ s- cal 2016 from $17,630 in ﬁ scal 2015. Th e components of net sales growth are shown in the following table: Contributions from volume growth (a) Net price realization and mix Foreign currency exchange Net sales growth Fiscal 2016 vs. 2015 (3) pts 1 pt (4) pts (6) pts (a) Measured in tons based on the stated weight of our product shipments. Net sales growth for ﬁ scal 2016 included a 1 percent decrease from acquisitions and divestitures, primar- ily Green Giant and Annie’s, reﬂ ecting 2 percentage points of decline from volume (please refer to Note 3 to the Consolidated Financial Statements on page 50 of this report). Th e 53rd week in ﬁ scal 2015 contributed approximately 1 percentage point of net sales decline in ﬁ scal 2016, reﬂ ecting 1 percentage point of decline from volume. Cost of sales decreased $948 million in ﬁ scal 2016 to $10,734 million. In ﬁ scal 2016, product mix drove a $486 million decrease in cost of sales and lower volume drove a $369 million decrease. We recorded a $63 million net decrease in cost of sales related to mark-to-market valu- ation of certain commodity positions and grain invento- ries as described in Note 7 to the Consolidated Financial Statements on page 56 of this report, compared to a net increase of $90 million in ﬁ scal 2015. In ﬁ scal 2016, we recorded $78 million of restructuring charges in cost of sales compared to $60 million in ﬁ scal 2015. We also recorded a $3 million foreign exchange loss in cost of sales in ﬁ scal 2015 related to Venezuela currency devaluation. We also expect to incur approximately $109 million of restructuring initiative project-related cash costs and recorded $58 million of these costs in cost of sales in ﬁ scal 2016 compared to $13 million in ﬁ scal 2015 (please refer to Note 4 to the Consolidated Financial Statements on page 51 of this report). Gross margin declined 2 percent in ﬁ scal 2016 versus ﬁ scal 2015. Gross margin as a percent of net sales of 35 percent increased 150 basis points compared to ﬁ scal 2015. Selling, general and administrative (SG&A) expenses decreased $209 million in ﬁ scal 2016 versus ﬁ scal 2015 primarily due to an 8 percent decrease in advertising and media expense, and savings from Project Catalyst, Project Compass, and our other cost-management initiatives (please refer to Note 4 to the Consolidated Financial Statements on page 51 of this report). In ﬁ s- cal 2015, we recorded a $5 million charge in SG&A 2016 Annual Report 15 expenses related to Venezuela currency devaluation and $16 million of integration costs related to our acquisi- tion of Annie’s. SG&A expenses as a percent of net sales decreased 10 basis points compared to ﬁ scal 2015. During ﬁ scal 2016, we recorded an $148 million dives- titures gain (net) from the sale of Green Giant, our sub- sidiary in Venezuela, and our foodservice business in Argentina (please refer to Note 3 of the Consolidated Financial Statements on page 50 of this report). Restructuring, impairment, and other exit costs totaled $151 million in ﬁ scal 2016 compared to $544 mil- lion in ﬁ scal 2015. In ﬁ scal 2015, we made a strategic decision to redirect certain resources supporting our Green Giant business in our U.S. Retail segment to other businesses within the segment. As a result, we recorded a $260 million impairment charge in ﬁ scal 2015 related to the Green Giant brand intangible asset. Restructuring charges recorded in restructuring, impairment, and other exit costs were $151 million in ﬁ scal 2016 compared to $284 million in ﬁ scal 2015. Total charges associated with our restructuring initia- tives recognized in ﬁ scal 2016 and 2015 consisted of the following: In Millions Compass Total Century (a) Catalyst Combination of certain operational facilities Other Total restructuring charges (a) Project-related costs As Reported Estimated Fiscal 2016 Fiscal 2015 Future Total Charge Cash Charge Cash Charge Cash Charge Cash Savings(b) $ 54.7 $ 36.1 $ — $ — $ 5 $ 24 $ 60 $ 60 182.6 34.1 181.8 (7.5) 47.8 148.4 — — 4.5 0.1 13.9 (0.6) 0.1 229.8 122.6 343.5 57.5 54.5 13.2 63.6 9.7 12.0 45.0 6.5 75 — 1 — 81 38 120 439 166 25 141 118 2 15 12 — — — 171 655 356 45 109 109 Restructuring charges and project-related costs $ 287.3 $ 177.1 $ 356.7 $ 73.3 $ 119 $ 216 $ 764 $ 465 Future cumulative annual savings $ 600 (a) Includes restructuring charges recorded in cost of sales of $78.4 million in ﬁ scal 2016 and $59.6 million in ﬁ scal 2015. (b) Cumulative annual savings estimated by ﬁ scal 2018. Includes savings from SG&A cost reduction projects. Please refer to Note 4 to the Consolidated Financial Statements on page 51 of this report for more information regarding our restructuring activities. Interest, net for ﬁ scal 2016 totaled $304 million, $12 million lower than ﬁ scal 2015, primarily driven by lower average debt balances, partially oﬀ set by changes in the mix of debt. Our consolidated eﬀ ective tax rate for ﬁ scal 2016 was 31.4 percent compared to 33.3 percent in ﬁ scal 2015. Th e 1.9 percentage point decrease was primarily due to the unfavorable impact of our repatriation of historical for- eign earnings in ﬁ scal 2015, partially oﬀ set by non-de- ductible expenses related to the Green Giant divestiture in ﬁ scal 2016. Our eﬀ ective tax rate excluding certain items aﬀ ecting comparability was 29.8 percent in ﬁ scal 2016 compared to 30.5 percent in ﬁ scal 2015 (see the “Non-GAAP Measures” section below for a description of our use of measures not deﬁ ned by GAAP). After-tax earnings from joint ventures for fiscal 2016 increased to $88 million compared to $84 million in ﬁ scal 2015 primarily driven by favorable input costs 16 General Mills in ﬁ scal 2016, favorable product mix for Häagen-Dazs Japan, Inc. (HDJ), and lapping an impairment charge of $3 million at Cereal Partners Worldwide (CPW) in South Africa in ﬁ scal 2015, partially oﬀ set by unfavor- able foreign currency. On a constant-currency basis, aft er-tax earnings from joint ventures increased 12 per- cent (see the “Non-GAAP Measures” section below for a description of our use of this measure not deﬁ ned by GAAP). Th e change in net sales for each joint venture is set forth in the following table: As Reported Constant-Currency Basis Fiscal 2016 vs. 2015 Fiscal 2016 vs. 2015 CPW HDJ Joint Ventures (12)% Flat (10)% Flat 5 1% The components of our joint ventures’ net sales growth are shown in the following table: Fiscal 2016 vs. Fiscal 2015 Contributions from volume growth (a) Net price realization and mix Foreign currency exchange Net sales growth CPW Flat Flat (12) pts (12) pts HDJ 11 pts (6) pts (5) pts Flat (a) Measured in tons based on the stated weight of our product shipments. Average diluted shares outstanding decreased by 7 million in ﬁ scal 2016 from ﬁ scal 2015 due to share repurchases, partially oﬀ set by option exercises. FISCAL 2015 CONSOLIDATED RESULTS OF OPERATIONS Fiscal 2015 had 53 weeks compared to 52 weeks in ﬁ scal 2014. Fiscal 2015 net sales declined 2 percent to $17,630 million and increased 1 percent on a constant-currency basis. Operating proﬁ t of $2,077 million was 30 percent lower than ﬁ scal 2014. Total segment operating proﬁ t was $3,035 million, 4 percent lower than ﬁ scal 2014 and 2 percent lower on a constant-currency basis. In ﬁ scal 2015, net earnings attributable to General Mills were $1,221 million, down 33 percent from $1,824 mil- lion in ﬁ scal 2014, and we reported diluted EPS of $1.97 in ﬁ scal 2015, down 30 percent from $2.83 in ﬁ scal 2014. Fiscal 2015 results include restructuring-related charges, an indeﬁ nite-lived intangible asset impairment charge, tax impacts from the repatriation of historical foreign earnings, losses from the mark-to-market valu- ation of certain commodity positions and grain invento- ries, integration costs resulting from the acquisition of Annie’s, and the impact of Venezuela currency devalua- tion. Fiscal 2014 results include the impact of Venezuela currency devaluation, a gain on the divestiture of cer- tain grain elevators, losses from the mark-to-market valuation of certain commodity positions and grain inventories, and restructuring charges related to our ﬁ s- cal 2012 productivity and cost savings plan. Diluted EPS excluding these items aﬀ ecting comparability totaled $2.86 in ﬁ scal 2015, up 1 percent from $2.82 in ﬁ scal 2014 (see the “Non-GAAP Measures” section below for a description of our use of these measures not deﬁ ned by GAAP). Net sales declined 2 percent to $17,630 million in ﬁ s- cal 2015 from $17,910 in ﬁ scal 2014. Th e components of net sales growth are shown in the following table: Contributions from volume growth (a) Net price realization and mix Foreign currency exchange Net sales growth Fiscal 2015 vs. 2014 (1) pt 2 pts (3) pts (2) pts (a) Measured in tons based on the stated weight of our product shipments. Th e 53rd week in ﬁ scal 2015 contributed approxi- mately 1 percentage point of net sales growth, reﬂ ecting 1 percentage point of growth from volume. Cost of sales increased $141 million in ﬁ scal 2015 to $11,681 million. In ﬁ scal 2015, we recorded a $90 mil- lion net increase in cost of sales related to mark-to- market valuation of certain commodity positions and grain inventories, compared to a net decrease of $49 million in ﬁ scal 2014. In ﬁ scal 2015, we recorded $60 million of restructuring charges in cost of sales. Product mix drove a $17 million increase in cost of sales. We also recorded a $3 million foreign exchange loss in ﬁ s- cal 2015 related to Venezuela currency devaluation com- pared to a $23 million loss in ﬁ scal 2014. Lower volume drove a $68 million decrease in cost of sales in ﬁ scal 2015. We recorded $13 million of restructuring initiative project-related cash costs in cost of sales in ﬁ scal 2015. Gross margin declined 7 percent in ﬁ scal 2015 versus ﬁ scal 2014. Gross margin as a percent of net sales of 34 percent decreased 190 basis points compared to ﬁ scal 2014. SG&A expenses decreased $146 million in ﬁ scal 2015 versus ﬁ scal 2014 primarily due to a 5 percent decrease in advertising and media expense, and savings from Project Catalyst and our other cost management initia- tives. In ﬁ scal 2015, we recorded a $5 million charge in SG&A expenses related to Venezuela currency devalua- tion compared to a $39 million charge in ﬁ scal 2014. In addition, we recorded $16 million of integration costs in SG&A expenses in ﬁ scal 2015 related to our acquisition of Annie’s. SG&A expenses as a percent of net sales decreased 50 basis points compared to ﬁ scal 2014. Th ere were no divestitures in ﬁ scal 2015. During ﬁ s- cal 2014, we recorded a divestiture gain of $66 million related to the sale of certain grain elevators in our U.S. Retail segment. 2016 Annual Report 17 Restructuring, impairment, and other exit costs totaled $544 million in ﬁ scal 2015 compared to $4 mil- lion in ﬁ scal 2014. In ﬁ scal 2015, we made a strategic decision to redirect certain resources supporting our Green Giant business in our U.S. Retail segment to other businesses within the segment. As a result, we recorded a $260 million impairment charge in ﬁ scal 2015 related to the Green Giant brand intangible asset. Restructuring charges recorded in restructuring, impairment, and other exit costs were $284 million in ﬁ scal 2015 compared to $4 million in ﬁ scal 2014. Total charges associated with our restructuring initiatives recognized in ﬁ scal 2015 and 2014 consisted of the following: As Reported Fiscal 2015 Fiscal 2014 In Millions Charge Cash Charge Cash of $606 million of historical foreign earnings in ﬁ scal 2015 was oﬀ set by changes in earnings mix by country, certain favorable discrete items, and favorable state tax rate changes. Our eﬀ ective tax rate excluding certain items aﬀ ecting comparability was 30.5 percent in ﬁ scal 2015 compared to 32.2 percent in ﬁ scal 2014 (see the “Non-GAAP Measures” section below for a description of our use of measures not deﬁ ned by GAAP). After-tax earnings from joint ventures for fiscal 2015 decreased to $84 million compared to $90 million in ﬁ scal 2014 primarily driven by unfavorable foreign currency exchange and an asset impairment charge of $3 million at CPW in South Africa. On a constant-cur- rency basis, aft er-tax earnings from joint ventures were ﬂ at (see the “Non-GAAP Measures” section below for a description of our use of this measure not deﬁ ned by GAAP). Th e change in net sales for each joint venture is set forth in the following table: As Reported Constant Currency Basis Fiscal 2015 vs. 2014 Fiscal 2015 vs. 2014 CPW HDJ Joint Ventures (10)% (4) (9)% (2)% 6 (1)% The components of our joint ventures’ net sales growth are shown in the following table: Fiscal 2015 vs. Fiscal 2014 Contributions from volume growth (a) Net price realization and mix Foreign currency exchange Net sales growth CPW (1) pt (1) pt (8) pts (10) pts HDJ (5) pts 11 pts (10) pts (4) pts (a) Measured in tons based on the stated weight of our product shipments. Average diluted shares outstanding decreased by 27 million in ﬁ scal 2015 from ﬁ scal 2014 due to share repurchases. Total Century (a) Catalyst International (0.6) Other Total restructuring charges (a) 343.5 Project-related costs $181.8 $12.0 $ — $ — 148.4 45.0 13.9 6.5 0.1 63.6 — 1.0 2.6 3.6 — 6.0 16.4 22.4 recorded in costs of sales 13.2 9.7 — — Restructuring charges and project-related costs $356.7 $73.3 $3.6 $22.4 (a) Includes $59.6 million of restructuring charges recorded in cost of sales during ﬁ scal 2015. Please refer to Note 4 to the Consolidated Financial Statements on page 51 of this report for more informa- tion regarding our restructuring activities. Interest, net for ﬁ scal 2015 totaled $315 million, $13 million higher than ﬁ scal 2014, primarily driven by higher average debt balances, partially oﬀ set by changes in the mix of debt. Our consolidated eﬀ ective tax rate for ﬁ scal 2015 of 33.3 percent was consistent with ﬁ scal 2014. Th e 4.5 percentage point impact resulting from the repatriation 18 General Mills RESULTS OF SEGMENT OPERATIONS Our businesses are organized into three operating segments: U.S. Retail; International; and Convenience Stores and Foodservice. In ﬁ scal 2015, we changed how we assess segment operating performance to exclude the asset and liability remeasurement impact from hyperinﬂ ationary econo- mies. Th is impact is now included in unallocated corpo- rate items. All periods presented have been changed to conform to this presentation. Th e following tables provide the dollar amount and percentage of net sales and operating proﬁ t from each seg- ment for ﬁ scal years 2016, 2015, and 2014: In Millions Net Sales U.S. Retail International Convenience Stores and Foodservice Total Segment Operating Proﬁ t U.S. Retail International Convenience Stores and Foodservice Total 2016 Fiscal Year 2015 2014 Dollars Percent of Total Dollars Percent of Total Dollars Percent of Total $10,007.1 60% $10,507.0 60% $10,604.9 4,632.2 1,923.8 28 12 5,128.2 1,995.1 29 11 5,385.9 1,918.8 59% 30 11 $16,563.1 100% $17,630.3 100% $17,909.6 100% $2,179.0 72% $2,159.3 71% $2,311.5 441.6 378.9 15 13 522.6 353.1 17 12 535.1 307.3 73% 17 10 $2,999.5 100% $3,035.0 100% $3,153.9 100% attributable to General Mills, or EPS. In addition, results from the acquired Annie’s business are included in the Meals and Snacks operating units. Our U.S. Retail segment reﬂ ects business with a wide variety of grocery stores, mass merchandisers, mem- bership stores, natural food chains, drug, dollar and discount chains, and e-commerce grocery providers operating throughout the United States. Our product categories in this business segment are ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks, and a wide variety of organic products includ- ing meal kits, granola bars, and cereal. Segment operating proﬁ t excludes unallocated cor- porate items, net gain on divestitures, and restructur- ing, impairment, and other exit costs because these items aﬀ ecting operating proﬁ t are centrally managed at the corporate level and are excluded from the mea- sure of segment proﬁ tability reviewed by our executive management. U.S. Retail Segment In ﬁ scal 2015, we realigned cer- tain operating units within our U.S. Retail operating segment. We also changed the name of our Yoplait operating unit to Yogurt and our Big G operating unit to Cereal. Frozen Foods transitioned into Meals and Baking Products. Small Planet Foods transitioned into Snacks, Cereal, and Meals. Th e Yogurt operating unit was unchanged. We revised the amounts previously reported in the net sales and net sales percentage change by operating unit within our U.S. Retail segment to conform to the new operating unit structure. Th ese realignments had no eﬀ ect on previously reported con- solidated net sales, operating segments’ net sales, oper- ating proﬁ t, segment operating proﬁ t, net earnings 2016 Annual Report 19 U.S. Retail net sales were as follows: Net sales (in millions) Contributions from volume growth (a) Net price realization and mix Fiscal 2016 Fiscal 2016 vs. 2015 Percentage Change Fiscal 2015 Fiscal 2015 vs. 2014 Percentage Change Fiscal 2014 $10,007.1 (5)% $10,507.0 (1)% $10,604.9 (7) pts 2 pts (1) pt Flat Segment operating proﬁ t of $2,179 million in ﬁ scal 2016 increased $20 million, or 1 percent, from ﬁ scal 2015. Th e increase was primarily driven by high levels of promotional expense in ﬁ scal 2015, cost savings from Project Catalyst and other cost management initiatives, a decrease in media and advertising expenses, and lower supply chain costs, partially oﬀ set by the net impact of the Green Giant divestiture and Annie’s acquisition. Segment operating proﬁ t of $2,159 million in ﬁ scal 2015 declined $152 million, or 7 percent, from ﬁ scal 2014. Th e decrease was primarily driven by lower vol- ume and an increase in supply chain costs, partially oﬀ - set by a 6 percent reduction in media and advertising expenses. International Segment Our International segment con- sists of retail and foodservice businesses outside of the United States. Our product categories include ready- to-eat cereals, shelf stable and frozen vegetables, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza snacks, refrigerated yogurt, grain and fruit snacks, and super-premium ice cream and frozen desserts. We also sell super-pre- mium ice cream and frozen desserts directly to con- sumers through owned retail shops. 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. (a) Measured in tons based on the stated weight of our product shipments. Th e net impact of acquisitions and divestitures, pri- marily Green Giant and Annie’s, decreased net sales growth by 2 percentage points in ﬁ scal 2016, reﬂ ecting 3 percentage points of decline from volume. Th e 53rd week in ﬁ scal 2015 contributed approximately 1 per- centage point of net sales decline in ﬁ scal 2016, reﬂ ect- ing 2 percentage points of decline from volume. In ﬁ scal 2015, the acquisition of Annie’s added 1 percentage point of net sales growth, reﬂ ecting 1 percentage point of growth from volume. Th e 53rd week contributed approximately 1 percentage point of net sales growth in ﬁ scal 2015, reﬂ ecting 1 percentage point of growth from volume. Net sales for our U.S. retail operating units are shown in the following table: Fiscal Year In Millions 2016 2015 2014 Meals (a) Cereal Snacks (a) Baking Products $ 2,393.9 $ 2,674.3 $ 2,772.4 2,312.8 2,330.1 2,410.2 2,094.3 2,134.4 1,997.8 1,903.4 1,969.8 2,096.1 Yogurt and other 1,302.7 1,398.4 1,328.4 Total $ 10,007.1 $ 10,507.0 $ 10,604.9 (a) Fiscal 2016 net sales for the Meals and Snacks operating units include an additional month of results from Annie’s. U.S. Retail net sales percentage change by operating unit are shown in the following table: Meals (a) Yogurt Baking Products Snacks (a) Cereal Total Fiscal 2016 vs. 2015 Fiscal 2015 vs. 2014 (10)% (7) (3) (2) (1) (5)% (4)% 5 (6) 7 (3) (1)% (a) Th e impact due to an additional month of results from Annie’s was not material to the Meals and Snacks operating units. Th e impact to ﬁ scal 2016 net sales growth for the U.S. Retail segment was not material. 20 General Mills International net sales were as follows: Net sales (in millions) Contributions from volume growth (a) Net price realization and mix Foreign currency exchange Fiscal 2016 $4,632.2 Fiscal 2016 vs. 2015 Percentage Change Fiscal 2015 Fiscal 2015 vs. 2014 Percentage Change Fiscal 2014 (10)% 3 pts Flat (13) pts $5,128.2 (5)% $5,385.9 Flat 6 pts (11) pts (a) Measured in tons based on the stated weight of our product shipments. Th e impact of acquisition and divestitures, primarily Green Giant, decreased net sales growth by 1 percent- age point in ﬁ scal 2016. Th e 53rd week in ﬁ scal 2015 contributed approximately 1 percentage point of net sales decline in ﬁ scal 2016, reﬂ ecting 1 percentage point of decline from volume. Th e 53rd week contributed approximately 1 percentage point of net sales growth in ﬁ scal 2015, reﬂ ecting 1 percentage point of growth from volume. Net sales for our International segment by geographic region are shown in the following table: In Millions Europe (a) Canada Asia/Paciﬁ c Latin America Total Fiscal Year 2016 2015 2014 $1,998.0 $2,126.5 $2,188.8 929.5 995.7 709.0 1,105.1 1,023.5 1,195.3 981.8 873.1 1,020.0 $4,632.2 $5,128.2 $5,385.9 (a) Fiscal 2016 net sales for the Europe region include an additional month of results from Yoplait SAS. International percentage change in net sales by geo- graphic region are shown in the following table: Percentage Change in Net Sales as Reported Percentage Change in Net Sales on Constant Currency Basis (a) Fiscal 2016 Fiscal 2015 vs. 2014 vs. 2015 Fiscal 2016 Fiscal 2015 vs. 2014 vs. 2015 Europe (b) Canada Asia/Paciﬁ c Latin America Total (6)% (3)% 3% 5% (16) (3) (19) (8) 4 (14) (4) 1 12 Flat 5 17 (10)% (5)% 3% 6% (a) See the “Non-GAAP Measures” section below for our use of this measure. (b) Fiscal 2016 percentage change in net sales as reported for the Europe region includes 3 percentage points of growth due to an additional month of results from Yoplait SAS. Th e impact to ﬁ scal 2016 net sales growth for the International segment was not material. Segment operating profit for fiscal 2016 declined 15 percent to $442 million from $523 million in ﬁ s- cal 2015, primarily driven by unfavorable foreign cur- rency exchange, an increase in SG&A expenses, and the impact of the Green Giant divestiture. International segment operating proﬁ t decreased 3 percent on a con- stant-currency basis in ﬁ scal 2016 compared to ﬁ scal 2015 (see the “Non-GAAP Measures” section below for our use of this measure). Segment operating profit for fiscal 2015 declined 2 percent to $523 million from $535 million in ﬁ scal 2014, primarily driven by unfavorable foreign currency exchange and higher input costs, partially oﬀ set by favorable net price realization and mix. International segment operating proﬁ t increased 9 percent on a con- stant-currency basis in ﬁ scal 2015 compared to ﬁ scal 2014 (see the “Non-GAAP Measures” section below for our use of this measure). Convenience Stores and Foodservice Segment In our Convenience Stores and Foodservice segment our major product categories are ready-to-eat cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products, and baking mixes. 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. 2016 Annual Report 21 Convenience Stores and Foodservice net sales were as follows: Net sales (in millions) Contributions from volume growth (a) Net price realization and mix Foreign currency exchange Fiscal 2016 Fiscal 2016 vs. 2015 Percentage Change Fiscal 2015 Fiscal 2015 vs. 2014 Percentage Change $1,923.8 (4)% $1,995.1 (3) pts (1) pt NM 4% 1 pt 3 pts NM Fiscal 2014 $1,918.8 (a) Measured in tons based on the stated weight of our product shipments. Th e 53rd week in ﬁ scal 2015 contributed approx- imately 2 percentage points of net sales decline in ﬁ scal 2016, reﬂ ecting 2 percentage points of decline from volume. In ﬁ scal 2015, the 53rd week contributed approximately 2 percentage points of net sales growth, reﬂ ecting 2 percentage points of growth from volume. In ﬁ scal 2016, segment operating proﬁ t was $379 million, up 7 percent from $353 million in ﬁ scal 2015 primarily driven by favorable product mix and cost sav- ings from Project Catalyst and other cost management initiatives. In ﬁ scal 2015, segment operating proﬁ t was up 15 percent from $307 million in ﬁ scal 2014 primarily driven by favorable net price realization and mix and higher volume. Unallocated Corporate Items Unallocated corporate items include corporate overhead expenses, variances to planned domestic employee beneﬁ ts and incentives, contributions to the General Mills Foundation, asset and liability remeasurement impact of hyperinﬂ ationary economies, restructuring initiative project-related costs, and other items that are not part of our measurement of segment operating performance. Th is includes gains and losses from the mark-to-market valuation of certain commodity positions until passed back to our operating segments in accordance with our policy as discussed in Note 7 to the Consolidated Financial Statements on page 56 of this report. For ﬁ scal 2016, unallocated corporate expense totaled $289 million compared to $414 million last year. In ﬁ scal 2016, we recorded a $63 million net decrease in expense related to mark-to-market valuation of certain commodity positions and grain inventories compared to a $90 million net increase in expense in the prior year. In addition, we recorded $78 million of restructuring charges, and $58 million of restructuring initiative proj- ect-related costs in cost of sales in ﬁ scal 2016, compared to $60 million of restructuring charges and $13 million of restructuring initiative project-related costs in cost of 22 General Mills sales in ﬁ scal 2015. We recorded an $8 million foreign exchange loss related to the remeasurement of assets and liabilities of our Venezuelan subsidiary in ﬁ scal 2015. We also recorded $16 million of integration costs resulting from the acquisition of Annie’s in ﬁ scal 2015. Th e decrease in unallocated corporate expense also reﬂ ects cost savings from Project Catalyst and other cost management initiatives. For ﬁ scal 2015, unallocated corporate expense totaled $414 million compared to $258 million in ﬁ scal 2014. In ﬁ scal 2015, we recorded a $90 million net increase in expense related to mark-to-market valuation of certain commodity positions and grain inventories compared to a $49 million net decrease in ﬁ scal 2014. In addition, we recorded $60 million of restructuring charges and $13 million of restructuring initiative project-related costs in cost of sales in ﬁ scal 2015. In ﬁ scal 2015, we recorded an $8 million foreign exchange loss related to the remea- surement of assets and liabilities of our Venezuelan sub- sidiary compared to $62 million in ﬁ scal 2014. We also recorded $16 million of integration costs resulting from the acquisition of Annie’s in ﬁ scal 2015. Venezuela is a highly inﬂ ationary economy and as such, we remeasured the value of the assets and liabil- ities of our former Venezuelan subsidiary based on the exchange rate at which we expected to remit dividends in U.S. dollars from the SIMADI market. In ﬁ scal 2015, we recorded an $8 million foreign currency exchange loss related to remeasurement. In ﬁ scal 2016, we sold our General Mills de Venezuela CA subsidiary to a third party and exited our business in Venezuela. As a result of this transaction, we recorded a loss on the sale of $38 million pre-tax. In ﬁ scal 2015, we changed how we assess segment operating performance to exclude the asset and liability remeasurement impact from hyperinﬂ ationary econo- mies. Th is impact is now included in unallocated corpo- rate items. All periods presented have been changed to conform to this presentation. IMPACT OF INFLATION Cash Flows from Operations Our gross margin performance in ﬁ scal 2016 reﬂ ects the impact of 2 percent input cost inﬂ ation, primarily on commodity inputs. We expect input cost inﬂ ation of 2 percent in ﬁ scal 2017. We attempt to minimize the eﬀ ects of inﬂ ation through HMM, planning, and oper- ating practices. Our risk management practices are dis- cussed on page 40 of this report. LIQUIDITY Th e primary source of our liquidity is cash ﬂ ow from operations. Over the most recent three-year period, our operations have generated $7.7 billion in cash. A sub- stantial portion of this operating cash ﬂ ow has been returned to shareholders through share repurchases and dividends. We also use cash from operations to fund our capital expenditures and acquisitions. We typically use a combination of cash, notes payable, and long-term debt to ﬁ nance signiﬁ cant acquisitions and major capital expansions. As of May 29, 2016, we had $645 million of cash and cash equivalents held in foreign jurisdictions, which will be used to fund foreign operations and acquisitions. Th ere is currently no need to repatriate these funds in order to meet domestic funding obligations or sched- uled cash distributions. If we choose to repatriate his- torical earnings held in foreign jurisdictions, we intend to do so only in a tax-neutral manner. In Millions 2016 2015 2014 Fiscal Year Net earnings, including earnings attributable to redeemable and noncontrolling interests $1,736.8 $1,259.4 $1,861.3 Depreciation and amortization 608.1 588.3 585.4 Aft er-tax earnings from joint ventures Distributions of earnings from joint ventures Stock-based compensation Deferred income taxes (88.4) (84.3) (89.6) 75.1 89.8 120.6 72.6 106.4 25.3 90.5 108.5 172.5 Tax beneﬁ t on exercised options (94.1) (74.6) (69.3) Pension and other postretirement beneﬁ t plan contributions (47.8) (49.5) (49.7) Pension and other postretirement beneﬁ t plan costs Divestitures (gain) Restructuring, impairment, 118.1 (148.2) 91.3 124.1 — (65.5) and other exit costs 107.2 531.1 (18.8) Changes in current assets and liabilities, excluding the eﬀ ects of acquisitions and divestitures Other, net Net cash provided by 258.2 214.7 (105.6) (137.9) (32.2) (76.2) operating activities $2,629.8 $2,542.8 $2,541.0 In ﬁ scal 2016, our operations generated $2.6 billion of cash compared to $2.5 billion in ﬁ scal 2015. Th e $477 million increase in net earnings included a $96 million change in deferred income taxes and a $148 million net gain on divestitures and was also oﬀ set by a $424 million decrease in non-cash restructuring charges. Th e $43 million change in current assets and liabilities was primarily driven by the timing of accounts payable including the impact of longer terms oﬀ set by the tim- ing of inventory build. We strive to grow core working capital at or below the rate of growth in our net sales. For ﬁ scal 2016, core working capital decreased 41 percent, primarily due to an increase in accounts payable, largely driven by lon- ger payables terms and a decrease in inventory, com- pared to a net sales decline of 6 percent. In ﬁ scal 2015, core working capital decreased 13 percent, compared to a net sales decline of 2 percent, and in ﬁ scal 2014, core 2016 Annual Report 23 working capital decreased 9 percent, compared to net sales growth of 1 percent. growth, support innovative products, and continue HMM initiatives throughout the supply chain. In ﬁ scal 2015, our operations generated $2.5 billion of cash, ﬂ at compared to ﬁ scal 2014. Th e $247 million change in current assets and liabilities was primarily driven by the timing of trade and promotion accruals, changes in tax accruals, and changes in derivative posi- tions. Th is was largely oﬀ set by lower net earnings, which included a $260 million non-cash impairment charge, $271 million of non-cash restructuring charges, and a $147 million change in net deferred income taxes. Cash Flows from Financing Activities Fiscal Year In Millions 2016 2015 2014 Change in notes payable $ (323.8) $ (509.8) $ 572.9 Issuance of long-term debt 542.5 2,253.2 1,673.0 Payment of long-term debt (1,000.4) (1,145.8) (1,444.8) Proceeds from common stock issued on exercised options 171.9 163.7 108.1 Tax beneﬁ t on exercised options 94.1 74.6 69.3 Cash Flows from Investing Activities Fiscal Year Purchases of common stock for treasury In Millions 2016 2015 2014 Dividends paid Purchases of land, buildings, and equipment Acquisitions, $ (729.3) $ (712.4) $ (663.5) Distributions to noncontrolling and redeemable interest holders (84.3) (25.0) Addition of noncontrolling interest — — 17.6 (606.7) (1,161.9) (1,745.3) (1,071.7) (1,017.7) (983.3) net of cash acquired (84.0) (822.3) — Investments in aﬃ liates, net 63.9 (102.4) (54.9) Proceeds from disposal of land, buildings, and equipment 4.4 11.0 6.6 Proceeds from divestitures Exchangeable note Other, net Net cash provided (used) by 828.5 21.1 — 121.6 27.9 29.3 (11.2) (4.0) (0.9) investing activities $ 93.4 $ (1,602.2) $ (561.8) In fiscal 2016, we generated $93 million of cash through investing activities compared to a use of $1.6 billion in ﬁ scal 2015. We invested $729 million in land, buildings, and equipment in ﬁ scal 2016, $17 million more than last year. In ﬁ scal 2016, we received proceeds of $828 million from the divestitures of certain busi- nesses, primarily Green Giant. In ﬁ scal 2015, we acquired Annie’s for an aggregate purchase price of $809 million, net of $12 million of cash acquired. In fiscal 2015, cash used by investing activities increased by $1.0 billion from ﬁ scal 2014. We invested $712 million in land, buildings, and equipment in ﬁ s- cal 2015, $49 million more than in ﬁ scal 2014. In ﬁ s- cal 2015, we acquired Annie’s. We made $102 million of investments in aﬃ liates, primarily CPW, in ﬁ scal 2015. In ﬁ scal 2014, we sold certain grain elevators for $124 million in cash. We expect capital expenditures to be approximately $734 million in ﬁ scal 2017. Th ese expenditures will fund initiatives that are expected to fuel International 24 General Mills (77.4) (14.2) Other, net Net cash used by (7.2) (16.1) ﬁ nancing activities $ (2,285.6) $ (1,384.8) $ (1,824.1) Net cash used by ﬁ nancing activities increased by $901 million in ﬁ scal 2016. We had $1.4 billion less net debt issuances in ﬁ scal 2016 than the prior year. For more information on our debt issuances and payments, please refer to Note 8 to the Consolidated Financial Statements on page 65 of this report. During ﬁ scal 2016, we received $172 million in pro- ceeds from common stock issued on exercised options compared to $164 million in ﬁ scal 2015, an increase of $8 million. During ﬁ scal 2014, we received $108 million in proceeds from common stock issued on exercised options. In May 2014, 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 trans- actions, including the use of call options and other derivative instruments, Rule 10b5-1 trading plans, and accelerated repurchase programs. Th e authorization has no speciﬁ ed termination date. During ﬁ scal 2016, we repurchased 11 million shares of our common stock for $607 million. During ﬁ scal 2015, we repurchased 22 million shares of our common stock for $1,162 million. During ﬁ scal 2014, we repurchased 36 million shares of our common stock for $1,745 million. Dividends paid in ﬁ scal 2016 totaled $1,072 million, or $1.78 per share, a 7 percent per share increase from ﬁ scal 2015. Dividends paid in ﬁ scal 2015 totaled $1,018 million, or $1.67 per share, an 8 percent per share increase from ﬁ scal 2014 dividends of $1.55 per share. Selected Cash Flows from Joint Ventures Selected cash ﬂ ows from our joint ventures are set forth in the following table: Fiscal Year Inﬂ ow (Outﬂ ow), in Millions 2016 2015 2014 Repayments from (advances to) joint ventures, net $63.9 $(102.4) $(54.9) Dividends received 75.1 72.6 90.5 CAPITAL RESOURCES Total capital consisted of the following: In Millions Notes payable May 29, 2016 May 31, 2015 $ 269.8 $ 615.8 Current portion of long-term debt 1,103.4 1,000.4 Long-term debt Total debt Redeemable interest Noncontrolling interests Stockholders’ equity Total capital 7,057.7 7,575.3 8,430.9 9,191.5 845.6 376.9 778.9 396.0 4,930.2 4,996.7 $14,583.6 $15,363.1 Th e following table details the fee-paid committed and uncommitted credit lines we had available as of May 29, 2016: In Billions Credit facility expiring: May 2021 June 2019 Total committed credit facilities Uncommitted credit facilities Total committed and Facility Amount Borrowed Amount $2.7 0.2 2.9 0.4 $ — 0.1 0.1 0.1 uncommitted credit facilities $3.3 $0.2 In May 2016, we entered into a $2.7 billion fee-paid committed credit facility that is scheduled to expire in May 2021. Concurrent with the execution of this credit facility, we terminated our $1.7 billion and $1.0 billion credit facilities. In June 2014, our subsidiary, Yoplait S.A.S. entered into a €200.0 million fee-paid committed credit facility that is scheduled to expire in June 2019. To ensure availability of funds, we maintain bank credit lines suﬃ cient to cover our outstanding notes payable. Commercial paper is a continuing source of short-term ﬁ nancing. We have commercial paper pro- grams available to us in the United States and Europe. We also have uncommitted and asset-backed credit lines that support our foreign operations. Th e credit facilities contain several covenants, including a require- ment to maintain a ﬁ xed 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 29, 2016, we were in compliance with all of these covenants. We have $1,103 million of long-term debt maturing in the next 12 months that is classiﬁ ed as current, includ- ing $1,000 million of 5.7 percent ﬁ xed rate notes due February 2017. We believe that cash ﬂ ows from opera- tions, together with available short- and long-term debt ﬁ nancing, will be adequate to meet our liquidity and capital needs for at least the next 12 months. As of May 29, 2016, our total debt, including the impact of derivative instruments designated as hedges, was 78 percent in ﬁ xed-rate and 22 percent in ﬂ oat- ing-rate instruments, compared to 72 percent in ﬁ xed- rate and 28 percent in ﬂ oating-rate instruments on May 31, 2015. Return on average total capital was 12.9 percent in ﬁ scal 2016 compared to 9.1 percent in ﬁ scal 2015. Improvement in return on adjusted average total capital is one of our key performance measures (see the “Non- GAAP Measures” section below for our discussion of this measure, which is not deﬁ ned by GAAP). Adjusted return on average total capital increased 10 basis points from 11.2 percent in ﬁ scal 2015 to 11.3 percent in ﬁ s- cal 2016 as ﬁ scal 2016 earnings increased. On a con- stant-currency basis, adjusted return on average total capital increased 40 basis points. We also believe that our ﬁ xed charge coverage ratio and the ratio of operating cash ﬂ ow to debt are import- ant measures of our ﬁ nancial strength. Our ﬁ xed charge coverage ratio in ﬁ scal 2016 was 7.40 compared to 5.54 in ﬁ scal 2015. Th e measure increased from ﬁ scal 2015 as earnings before income taxes and aft er-tax earnings from joint ventures increased by $642 million in ﬁ scal 2016. Our operating cash ﬂ ow to debt ratio increased 3.5 percentage points to 31.2 percent in ﬁ scal 2016, driven by a decrease in total debt. 2016 Annual Report 25 We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl. Sodiaal holds the remaining interests in each of these entities. We consolidate these entities into our consolidated ﬁ nancial statements. We record Sodiaal’s 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl as noncontrolling inter- ests, and its 49 percent interest in Yoplait SAS as a redeemable interest on our Consolidated Balance Sheets. Th ese euro- and Canadian dollar-denominated interests are reported in U.S. dollars on our Consolidated Balance Sheets. Sodiaal has the ability to put all or a portion of its redeemable interest to us at fair value once per year, up to three times before December 2024. As of May 29, 2016, the redemption value of the redeemable interest was $846 million which approximates its fair value. Th e third-party holder of the General Mills Cereals, LLC (GMC) Class A Interests receives quarterly pre- ferred distributions from available net income based on the application of a ﬂ oating preferred return rate to the holder’s capital account balance established in the most recent mark-to-market valuation (currently $252 million). On June 1, 2015, the ﬂ oating preferred return rate on GMC’s Class A Interests was reset to the sum of three-month LIBOR plus 125 basis points. Th e pre- ferred return rate is adjusted every three years through a negotiated agreement with the Class A Interest holder or through a remarketing auction. We have an option to purchase the Class A Interests for consideration equal to the then current capital account value, plus any unpaid preferred return and the prescribed make-whole amount. If we purchase these interests, any change in the third-party holder’s capital account from its original value will be charged directly to retained earnings and will increase or decrease the net earnings used to calculate EPS in that period. OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS As of May 29, 2016, we have issued guarantees and comfort letters of $383 million for the debt and other obligations of consolidated subsidiaries, and guarantees and comfort letters of $239 million for the debt and other obligations of non-consolidated aﬃ liates, mainly CPW. In addition, off-balance sheet arrangements are generally limited to the future payments under non-cancelable operating leases, which totaled $398 million as of May 29, 2016. 26 General Mills As of May 29, 2016, we had invested in ﬁ ve variable interest entities (VIEs). None of our VIEs are material to our results of operations, ﬁ nancial condition, or liquidity as of and for the ﬁ scal year ended May 29, 2016. Our deﬁ ned beneﬁ t plans in the United States are subject to the requirements of the Pension Protection Act (PPA). In the future, the PPA may require us to make additional contributions to our domestic plans. We do not expect to be required to make any contribu- tions in ﬁ scal 2017. Th e following table summarizes our future estimated cash payments under existing contractual obligations, including payments due by period: Payments Due by Fiscal Year In Millions Total 2017 2022 and 2018-19 2020-21 Th ereaft er Long-term debt (a) $ 8,190.2 $1,103.0 $1,754.2 $1,611.6 $3,721.4 Accrued interest 90.4 90.4 — Operating leases (b) 397.6 107.9 150.7 Capital leases 2.7 0.9 1.3 — 89.2 0.4 Purchase obligations (c) 3,082.1 1,955.9 603.7 497.4 — 49.8 0.1 25.1 Total contractual obligations 11,763.0 3,258.1 2,509.9 2,198.6 3,796.4 Other long-term obligations (d) 1,957.0 — — — — Total long-term obligations $13,720.0 $3,258.1 $2,509.9 $2,198.6 $3,796.4 (a) Amounts represent the expected cash payments of our long-term debt and do not include $2 million for capital leases or $31 million for net unamortized debt issuance costs, premiums and discounts, and fair value adjustments. (b) Operating leases represents the minimum rental commitments under non-cancelable operating leases. (c) Th e 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 obliga- tions if a contract speciﬁ es all signiﬁ cant terms, including ﬁ xed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Most arrangements are cancelable without a signiﬁ cant penalty and with short notice (usually 30 days). Any amounts reﬂ ected on the Consolidated Balance Sheets as accounts payable and accrued liabilities are excluded from the table above. (d) Th e fair value of our foreign exchange, equity, commodity, and grain derivative contracts with a payable position to the counterparty was $44 million as of May 29, 2016, 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 ben- eﬁ ts, including the underfunded status of certain of our deﬁ ned beneﬁ t pension, other postretirement beneﬁ t, and postemployment beneﬁ t plans, and miscellaneous liabilities. We expect to pay $22 million of beneﬁ ts from our unfunded postemployment beneﬁ t plans and $14 million of deferred compensation in ﬁ scal 2017. We are unable to reliably estimate the amount of these payments beyond ﬁ scal 2017. As of May 29, 2016, our total liability for uncertain tax positions and accrued interest and penalties was $209 million. SIGNIFICANT ACCOUNTING ESTIMATES For a complete description of our signiﬁ cant account- ing policies, see Note 2 to the Consolidated Financial Statements on page 47 of this report. Our signiﬁ cant accounting estimates are those that have a meaning- ful impact on the reporting of our ﬁ nancial condition and results of operations. Th ese estimates include our accounting for promotional expenditures, valuation of long-lived assets, intangible assets, redeemable interest, stock-based compensation, income taxes, and deﬁ ned benefit pension, other postretirement benefit, and postemployment beneﬁ t plans. Promotional Expenditures Our promotional activities are conducted through our customers and directly or indirectly with end consumers. Th ese 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. Th e recognition of these costs requires estimation of customer participation and per- formance levels. Th ese estimates are based on the fore- casted customer sales, the timing and forecasted costs of promotional activities, and other factors. Diﬀ erences between estimated expenses and actual costs are recog- nized as a change in management estimate in a subse- quent period. Our accrued trade, coupon, and consumer marketing liabilities were $564 million as of May 29, 2016, and $565 million as of May 31, 2015. Because our total promotional expenditures (including amounts clas- siﬁ ed as a reduction of revenues) are signiﬁ cant, if our estimates are inaccurate we would have to make adjust- ments in subsequent periods that could have a signiﬁ - cant eﬀ ect on our results of operations. Valuation of Long-Lived Assets We estimate the useful lives of long-lived assets and make estimates concerning undiscounted cash ﬂ ows to review for impairment when- ever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Fair value is measured using discounted cash ﬂ ows or independent appraisals, as appropriate. or changes in circumstances indicate that impairment may have occurred. Our estimates of fair value for goodwill impairment testing are determined based on a discounted cash ﬂ ow model. We use inputs from our long-range planning process to determine growth rates for sales and proﬁ ts. We also make estimates of discount rates, perpetuity growth assumptions, market compara- bles, and other factors. We evaluate the useful lives of our other intangible assets, mainly brands, to determine if they are ﬁ nite or indeﬁ nite-lived. Reaching a determination on useful life requires signiﬁ cant judgments and assumptions regard- ing the future eﬀ ects 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 deﬁ - nite lives are amortized on a straight-line basis, over their useful lives, generally ranging from 4 to 30 years. Our estimate of the fair value of our brand assets is based on a discounted cash ﬂ ow model using inputs which include projected revenues from our long-range plan, assumed royalty rates that could be payable if we did not own the brands, and a discount rate. As of May 29, 2016, we had $12.9 billion of goodwill and indeﬁ nite-lived intangible assets. While we currently believe that the fair value of each intangible exceeds its carrying value and that those intangibles so classiﬁ ed will contribute indeﬁ nitely to our cash ﬂ ows, materially dif- ferent assumptions regarding future performance of our businesses or a diﬀ erent weighted-average cost of capital could result in material impairment losses and amortiza- tion expense. We performed our ﬁ scal 2016 assessment of our intangible assets as of August 31, 2015. As of our annual assessment date, there was no impairment of any of our intangible assets as their related fair values were substantially in excess of the carrying values, except for the Mountain High and Uncle Toby’s brands. Th e excess fair value above the carrying value of these brand assets were as follows: Intangible Assets Goodwill and other indeﬁ nite-lived intangible assets are not subject to amortization and are tested for impairment annually and whenever events In Millions Mountain High Uncle Toby’s Excess Fair Value Above Carrying Value 20% 11% Carrying Value $ 35.4 $ 52.2 2016 Annual Report 27 Our Mountain High and Uncle Toby’s brands have experienced declining business performance, and we will continue to monitor these businesses. Our strategies for ﬁ scal 2017 and ﬁ scal 2018 will focus our growth investments on our brands and platforms with the strongest proﬁ table growth potential. As a result, certain parts of our U.S. Retail segment could experience reduced future sales projections. We per- formed a sensitivity analysis for certain brand intangi- ble assets and determined that, while not impaired as of May 29, 2016, the Progresso and Food Should Taste Good brands had risk of decreasing coverage. We will continue to monitor these businesses. Redeemable Interest In ﬁ scal 2016, we adjusted the redemption value of Sodiaal’s redeemable interest in Yoplait SAS based on a discounted cash ﬂ ow model. The significant assumptions used to estimate the redemption value include projected revenue growth and proﬁ tability from our long-range plan, capital spending, depreciation and taxes, foreign currency exchange rates, and a discount rate. As of May 29, 2016, the redemp- tion value of the redeemable interest was $846 million. Stock-based Compensation The valuation of stock options is a significant accounting estimate that requires us to use judgments and assumptions that are likely to have a material impact on our ﬁ nancial statements. Annually, we make predictive assumptions regarding future stock price volatility, employee exer- cise behavior, dividend yield, and the forfeiture rate. For more information on these assumptions, please refer to Note 11 to the Consolidated Financial Statements on page 69 of this report. Th e estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows: Fiscal Year 2016 2015 2014 Estimated fair values of stock options granted $7.24 $7.22 $6.03 Assumptions: Risk-free interest rate 2.4% 2.6% 2.6% Expected term Expected volatility Dividend yield 8.5 years 8.5 years 9.0 years 17.6% 17.5% 17.4% 3.2% 3.1% 3.1% Th e 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 eﬀ ect at the time of grant. An increase in the expected term by 1 year, leaving all other assumptions constant, would increase the grant date fair value by less than 1 percent. If all other assumptions are held constant, a one percentage point increase in our ﬁ scal 2016 volatility assumption would increase the grant date fair value of our ﬁ scal 2016 option awards by 7 percent. To the extent that actual outcomes diﬀ er from our assumptions, we are not required to true up grant- date fair value-based expense to ﬁ nal intrinsic values. However, these diﬀ erences can impact the classiﬁ ca- tion of cash tax beneﬁ ts realized upon exercise of stock options, as explained in the following two paragraphs. Furthermore, historical data has a signiﬁ cant bearing on our forward-looking assumptions. Signiﬁ cant vari- ances between actual and predicted experience could lead to prospective revisions in our assumptions, which could then signiﬁ cantly impact the year-over-year com- parability of stock-based compensation expense. Any corporate income tax beneﬁ t realized upon exer- cise or vesting of an award in excess of that previously recognized in earnings (referred to as a windfall tax beneﬁ t) is presented in the Consolidated Statements of Cash Flows as a ﬁ nancing cash ﬂ ow. Th e actual impact on future years’ ﬁ nancing cash ﬂ ows 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 deter- mined for ﬁ nancial reporting purposes. Realized windfall tax beneﬁ ts are credited to addi- tional paid-in capital within the Consolidated Balance Sheets. Realized shortfall tax beneﬁ ts (amounts which are less than that previously recognized in earnings) are ﬁ rst oﬀ set against the cumulative balance of windfall tax beneﬁ ts, if any, and then charged directly to income tax expense, potentially resulting in volatility in our consolidated eﬀ ective income tax rate. We calculated a cumulative amount of windfall tax beneﬁ ts for the pur- pose of accounting for future shortfall tax beneﬁ ts and currently have suﬃ cient cumulative windfall tax bene- ﬁ ts to absorb projected arising shortfalls, such that we do not currently expect future earnings to be aﬀ ected by this provision. However, as employee stock option exercise behavior is not within our control, it is possible 28 General Mills that signiﬁ cantly diﬀ erent reported results could occur if diﬀ erent assumptions or conditions were to prevail. Income Taxes We apply a more-likely-than-not thresh- old to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax beneﬁ t 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 aﬀ ect earnings in the quarter of such change. For more information on income taxes, please refer to Note 14 to the Consolidated Financial Statements on page 78 of this report. Deﬁ ned Beneﬁ t Pension, Other Postretirement Beneﬁ t, and Postemployment Beneﬁ t Plans We have deﬁ ned beneﬁ t pension plans covering many employees in the United States, Canada, France, and the United Kingdom. We also sponsor plans that provide health care beneﬁ ts to many of our retirees in the United States, Canada, and Brazil. Under certain circumstances, we also provide accruable beneﬁ ts to former and inactive employees in the United States, Canada, and Mexico, and members of our Board of Directors, including severance and certain other beneﬁ ts payable upon death. Please refer to Note 13 to the Consolidated Financial Statements on page 72 of this report for a description of our deﬁ ned beneﬁ t pension, other postretirement beneﬁ t, and postemploy- ment beneﬁ t plans. We recognize beneﬁ ts provided during retirement or following employment over the plan participants’ active working lives. Accordingly, we make various assump- tions to predict and measure costs and obligations many years prior to the settlement of our obligations. Assumptions that require signiﬁ cant management judg- ment and have a material impact on the measurement of our net periodic beneﬁ t expense or income and accu- mulated beneﬁ t obligations include the long-term rates of return on plan assets, the interest rates used to dis- count the obligations for our beneﬁ t plans, and health care cost trend rates. Expected Rate of Return on Plan Assets Our expected rate of return on plan assets is determined by our asset allocation, our historical long-term investment perfor- mance, 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, signiﬁ cantly inﬂ uence our evaluation. Our historical investment returns (compound annual growth rates) for our United States deﬁ ned beneﬁ t pen- sion and other postretirement beneﬁ t plan assets were 0.7 percent, 7.8 percent, 6.6 percent, 7.4 percent, and 8.6 percent for the 1, 5, 10, 15, and 20 year periods ended May 29, 2016. On a weighted-average basis, the expected rate of return for all deﬁ ned beneﬁ t plans was 8.53 percent for ﬁ scal 2016, 8.53 percent for ﬁ scal 2015, and 8.53 percent for ﬁ scal 2014. During ﬁ scal 2016, we lowered our weighted-average expected rate of return on plan assets for our principal deﬁ ned beneﬁ t pension and other postretirement plans in the United States to 8.25 percent due to asset changes that decreased investment risk in the portfolio. Lowering the expected long-term rate of return on assets by 100 basis points would increase our net pen- sion and postretirement expense by $64 million for ﬁ scal 2017. A market-related valuation basis is used to reduce year-to-year expense volatility. Th e market-related valu- ation recognizes certain investment gains or losses over a ﬁ ve-year period from the year in which they occur. Investment gains or losses for this purpose are the dif- ference 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 deter- mination of annual expense or income. Discount Rates Our discount rate assumptions are determined annually as of the last day of our ﬁ scal year for our deﬁ ned beneﬁ t pension, other postretirement beneﬁ t, and postemployment beneﬁ t plan obligations. We work with our outside actuaries to determine the timing and amount of expected future cash outﬂ ows 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. Th is forward interest rate curve is applied to our expected future cash outﬂ ows to determine our discount rate assumptions. 2016 Annual Report 29 Our weighted-average discount rates were as follows: Deﬁ ned Other Beneﬁ t Postretirement Postemployment Beneﬁ t Beneﬁ t Pension Plans Plans Plans In Millions Eﬀ ect on the aggregate of the service and interest cost One One Percentage Percentage Point Decrease Point Increase Obligations as of May 29, 2016, and components in ﬁ scal 2017 $ 3.1 $ (2.7) Eﬀ ect on the other postretirement ﬁ scal 2017 expense 4.19% 3.97% 2.94% accumulated beneﬁ t obligation Obligations as of May 31, 2015, and ﬁ scal 2016 expense Fiscal 2015 expense 4.38% 4.54% 4.20% 4.51% 3.55% 3.82% Lowering the discount rates by 100 basis points would increase our net deﬁ ned beneﬁ t pension, other post- retirement beneﬁ t, and postemployment beneﬁ t plan expense for ﬁ scal 2017 by approximately $96 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 experi- ence and information provided by our actuaries. Th is 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 neces- sary to remain consistent with this review, recent expe- riences, and short-term expectations. Our initial health care cost trend rate assumption is 7.5 percent for retir- ees age 65 and over and 7.3 percent for retirees under age 65 at the end of ﬁ scal 2016. Rates are graded down annually until the ultimate trend rate of 5.0 percent is reached in 2024 for all retirees. Th e trend rates are applicable for calculations only if the retirees’ beneﬁ ts increase as a result of health care inﬂ ation. Th e ulti- mate trend rate is adjusted annually, as necessary, to approximate the current economic view on the rate of long-term inﬂ ation plus an appropriate health care cost premium. Assumed trend rates for health care costs have an important eﬀ ect on the amounts reported for the other postretirement beneﬁ t plans. A one percentage point change in the health care cost trend rate would have the following eﬀ ects: 30 General Mills as of May 29, 2016 71.2 (63.8) 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 10 years, resulting in at least the minimum amortization required being recorded. Financial Statement Impact In ﬁ scal 2016, we recorded net deﬁ ned beneﬁ t pension, other postretirement ben- eﬁ t, and postemployment beneﬁ t plan expense of $163 million compared to $153 million of expense in ﬁ scal 2015 and $140 million of expense in ﬁ scal 2014. As of May 29, 2016, we had cumulative unrecognized actu- arial net losses of $1.9 billion on our deﬁ ned beneﬁ t pension plans and $72 million on our postretirement and postemployment beneﬁ t plans, mainly as the result of liability increases from lower interest rates, partially oﬀ set by recent increases in the values of plan assets. Th ese unrecognized actuarial net losses will result in increases in our future pension and postretirement beneﬁ t expenses because they currently exceed the cor- ridors deﬁ ned by GAAP. Assumed mortality rates of plan participants are a critical estimate in measuring the expected payments a participant will receive over their lifetime and the amount of expense we recognize. On October 27, 2014, the Society of Actuaries published RP-2014 Mortality Tables and Mortality Improvement Scale MP-2014, which both reﬂ ect improved longevity. In ﬁ scal 2015, we adopted the change to the mortality assumptions to remeasure our deﬁ ned beneﬁ t pension plans and other postretirement beneﬁ t plans obligations, which increased the total of these obligations by $437 million in ﬁ scal 2015. In addition, these assumptions increased the ﬁ scal 2016 expense associated with these plans by $72 million. Actual future net defined benefit pension, other postretirement benefit, and postemployment bene- ﬁ t 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In March 2016, the Financial Accounting Standards Board (FASB) issued new accounting requirements for the accounting and presentation of stock-based pay- ments. Th is will result in realized windfall and short- fall tax beneﬁ ts upon exercise or vesting of stock-based awards being recorded in our Consolidated Statements of Earnings in addition to other presentation changes. Th e requirements of the new standard are eﬀ ective for annual reporting periods beginning aft er December 15, 2016, and interim periods within those annual periods, which for us is the ﬁ rst quarter of ﬁ scal 2018. Early adoption is permitted. We are in the process of analyz- ing the impact on our results of operations and ﬁ nan- cial position. In February 2016, the FASB issued new accounting requirements for accounting, presentation and classiﬁ - cation of leases. Th is will result in most leases being capitalized as a right of use asset with a related liability on our Consolidated Balance Sheets. Th e requirements of the new standard are eﬀ ective for annual reporting periods beginning aft er December 15, 2018, and interim periods within those annual periods, which for us is the ﬁ rst quarter of ﬁ scal 2020. We are in the process of analyzing the impact on our results of operations and ﬁ nancial position. In May 2015, the FASB issued new accounting requirements for the presentation of certain invest- ments using the net asset value, providing a practical expedient to exclude such investments from catego- rization within the fair value hierarchy and separate disclosure. Th e requirements of the new standard are eﬀ ective for annual reporting periods beginning aft er December 15, 2015, and interim periods within those annual periods, which for us is the ﬁ rst quarter of ﬁ scal 2017. We do not expect this guidance to have a material impact on our results of operations or ﬁ nancial position. In April 2015, the FASB issued new accounting requirements which permits reporting entities with a ﬁ scal year-end that does not coincide with a month- end to apply a practical expedient that permits the entity to measure deﬁ ned beneﬁ t plan assets and obli- gations using the month-end that is closest to the entity’s ﬁ scal year-end and apply such practical expedi- ent consistently to all plans. Th e requirements of the new standard are eﬀ ective for annual reporting periods beginning aft er December 15, 2015, and interim periods within those annual periods, which for us is the ﬁ rst quarter of ﬁ scal 2017. We do not expect this guidance to have a material impact on our results of operations or ﬁ nancial position. In May 2014, the FASB issued new accounting requirements for the recognition of revenue from con- tracts with customers. Th e requirements of the new standard and its subsequent amendments are eﬀ ective for annual reporting periods beginning aft er December 15, 2017, and interim periods within those annual peri- ods, which for us is the ﬁ rst quarter of ﬁ scal 2019. We do not expect this guidance to have a material impact on our results of operations or ﬁ nancial position. NON-GAAP MEASURES We have included in this report measures of ﬁ nancial performance that are not deﬁ ned by GAAP. We believe that these measures provide useful information to investors, and include these measures in other commu- nications to investors. For each of these non-GAAP ﬁ nancial measures, we are providing below a reconciliation of the diﬀ erences between the non-GAAP measure and the most directly comparable GAAP measure, an explanation of why our management or the Board of Directors believes the non- GAAP measure provides useful information to investors and any additional purposes for which our manage- ment or Board of Directors uses the non-GAAP measure. Th ese non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure. Constant-currency Net Sales Growth Rates Th is mea- sure is used in reporting to our executive management and as a component of the Board of Directors’ mea- surement of our performance for incentive compensa- tion purposes. We believe that this measure provides useful information to investors because it provides transparency to underlying performance in our con- solidated net sales by excluding the eﬀ ect that foreign currency exchange rate ﬂ uctuations have on the year- to-year comparability given volatility in foreign cur- rency exchange markets. 2016 Annual Report 31 Net sales growth rates on a constant-currency basis are calculated as follows: Percentage change in total net sales Impact of foreign currency exchange Percentage change in total net sales Fiscal 2016 2015 (6)% (2)% (4) pts (3) pts on a constant-currency basis (2)% 1% Diluted EPS Excluding Certain Items Affecting Comparability and Related Constant-currency Growth Rate Th is measure is used in reporting to our executive management and as a component of the Board of Directors’ measurement of our performance for incentive compensation purposes. We believe that this measure provides useful information to investors because it is the proﬁ tability measure we use to eval- uate earnings performance on a comparable year-over- year basis. Th e adjustments are either items resulting from infrequently occurring events or items that, in management’s judgment, signiﬁ cantly aﬀ ect the year- over-year assessment of operating results. Th e reconciliation of our GAAP measure, diluted EPS, to diluted EPS excluding certain items aﬀ ecting comparabil- ity and the related constant-currency growth rate follows: Per Share Data Diluted earnings per share, as reported Mark-to-market eﬀ ects (a) Divestitures gain, net (b) Tax items (c) Acquisition integration costs (d) Venezuela currency devaluation (e) Restructuring costs (f) Project-related costs (f) Indeﬁ nite-lived intangible asset impairment (g) Diluted earnings per share, excluding 2016 $2.77 (0.07) (0.10) — — — 0.26 0.06 — 2015 $1.97 0.09 — 0.13 0.02 0.01 0.35 0.01 0.28 certain items aﬀ ecting comparability $2.92 $2.86 Foreign currency exchange impact Diluted earnings per share growth, excluding certain items aﬀ ecting comparability, on a constant-currency basis (a) See Note 7 to the Consolidated Financial Statements on page 56 of this report. (b) See Note 3 to the Consolidated Financial Statements on page 50 of this report. Fiscal Year Change 41% 2% (3) pts 5% 2014 $2.83 (0.05) (0.06) — — 0.09 0.01 — — 2013 $2.79 — — (0.13) 0.01 0.03 0.02 — — 2012 $2.35 0.10 — — 0.01 — 0.10 — — $2.82 $2.72 $2.56 (c) Th e ﬁ scal 2015 tax item is related to the one-time repatriation of historical foreign earnings in ﬁ scal 2015. Th e ﬁ scal 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, ﬁ scal 2013 includes changes in deferred taxes associated with the Medicare Part D subsidies related to the Patient Protection and Aﬀ ordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010. (d) Integration costs resulting from the acquisitions of Annie’s in ﬁ scal 2015, Yoki in ﬁ scal 2013, and Yoplait SAS and Yoplait Marques SNC in ﬁ scal 2012. (e) See Note 7 to the Consolidated Financial Statements on page 56 of this report. (f) See Note 4 to the Consolidated Financial Statements on page 51 of this report. (g) See Note 6 to the Consolidated Financial Statements on page 54 of this report. See our reconciliation below of the eﬀ ective income tax rate as reported to the eﬀ ective income tax rate excluding certain items aﬀ ecting comparability for the tax impact of each item aﬀ ecting comparability. 32 General Mills Total Segment Operating Profit and Related Constant-currency Growth Rate Th is measure is used in reporting to our executive management and as a component of the Board of Directors’ measurement of our performance for incentive compensation purposes. We believe that this measure provides useful informa- tion to investors because it is the proﬁ tability measure we use to evaluate segment performance. A reconcil- iation of total segment operating proﬁ t to operating proﬁ t, the relevant GAAP measure, is included in Note 16 to the Consolidated Financial Statements on page 81 of this report. Total segment operating proﬁ t growth rates on a constant-currency basis are calculated as follows: Fiscal Constant-currency Aft er-tax Earnings from Joint Ventures Growth Rates We believe that this mea- sure provides useful information to investors because it provides transparency to underlying performance of our joint ventures by excluding the eﬀ ect that foreign currency exchange rate ﬂ uctuations have on year-to- year comparability given volatility in foreign currency exchange markets. Aft er-tax earnings from joint ventures growth rates on a constant-currency basis are calculated as follows: Percentage change in aft er-tax earnings from joint ventures as reported 5% (6)% Impact of foreign currency exchange (7) pts (6) pts Fiscal 2016 2015 Percentage change in total segment operating proﬁ t as reported Impact of foreign currency exchange Percentage change in total segment 2016 2015 Percentage change in aft er-tax earnings from joint ventures (1)% (4)% (2) pts (2) pts on a constant-currency basis 12% Flat operating proﬁ t on a constant-currency basis 1% (2)% Net Sales Growth Rates for Our International Segment on Constant-currency Basis We believe this measure of our International segment and region net sales provides useful information to investors because it provides transpar- ency to the underlying performance by excluding the eﬀ ect that foreign currency exchange rate ﬂ uctuations have on year-to-year comparability given volatility in foreign currency exchange markets. Europe Canada Asia/Paciﬁ c Latin America Total International Europe Canada Asia/Paciﬁ c Latin America Total International Fiscal 2016 Percentage Change in Net Sales as Reported Impact of Foreign Currency Exchange Percentage Change in Net Sales on Constant Currency Basis (6)% (16) (3) (19) (10)% (9) pts (12) (4) (31) (13) pts 3% (4) 1 12 3% Fiscal 2015 Percentage Change in Net Sales as Reported Impact of Foreign Currency Exchange Percentage Change in Net Sales on Constant Currency Basis (3)% (8) 4 (14) (5)% (8) pts (8) (1) (31) (11) pts 5% Flat 5 17 6% 2016 Annual Report 33 Constant-currency International Segment Operating Proﬁ t Growth Rates We believe that this measure provides useful information to investors because it provides transparency to underlying performance of the International seg- ment by excluding the eﬀ ect that foreign currency exchange rate ﬂ uctuations have on year-to-year comparability given volatility in foreign currency exchange markets. International segment operating proﬁ t growth rates on a constant-currency basis are calculated as follows: Percentage change in International segment operating proﬁ t as reported Impact of foreign currency exchange Percentage change in International segment operating proﬁ t on a constant-currency basis Fiscal 2016 (15)% (12) pts (3)% 2015 (2)% (11) pts 9% 34 General Mills Adjusted Return on Average Total Capital Change in adjusted return on average total capital is a measure used in reporting to our executive management and as a component of the Board of Director’s measurement of our perfor- mance for incentive compensation purposes. We believe that this measure provides useful information to investors because it is important for assessing the utilization of capital and it eliminates certain items that aﬀ ect year-to-year comparability. Th e calculation of adjusted return on average total capital and return on average total capital, its GAAP equivalent follows: In Millions 2016 2015 2014 2013 2012 2011 Net earnings, including earnings attributable to redeemable and noncontrolling interests $ 1,736.8 $ 1,259.4 $ 1,861.3 $ 1,892.5 $ 1,589.1 Fiscal Year Interest, net, aft er-tax Earnings before interest, aft er-tax Adjustments, aft er-tax: (a) Mark-to-market eﬀ ects Divestitures gain, net Tax items Acquisition integration costs Venezuela currency devaluation Restructuring costs Project-related costs Indeﬁ nite-lived intangible impairment Adjusted earnings before interest, aft er-tax for 193.1 199.8 190.9 201.2 238.9 1,929.9 1,459.2 2,052.2 2,093.7 1,828.0 (39.6) (66.0) — — — 160.8 36.8 — 56.5 — 78.6 10.4 8.0 217.7 8.3 176.9 (30.5) (36.0) — — 57.8 3.6 — — (2.8) — (85.4) 8.8 20.8 15.9 — — 65.6 — — 9.7 — 64.3 — — adjusted return on capital calculation $ 2,021.9 $ 2,015.6 $ 2,047.1 $ 2,051.0 $ 1,967.6 Current portion of long-term debt $ 1,103.4 $ 1,000.4 $ 1,250.6 $ 1,443.3 $ 741.2 $ 1,031.3 Notes payable Long-term debt Total debt Redeemable interest Noncontrolling interests Stockholders’ equity Total capital Accumulated other comprehensive loss Aft er-tax earnings adjustments (b) Adjusted total capital Average total capital (c) Return on average total capital (c) Adjusted average total capital (c) Adjusted return on average total capital (c) Change in adjusted return on average total capital Foreign currency exchange impact Change in adjusted return on average total capital on a constant-currency basis 269.8 615.8 1,111.7 599.7 526.5 311.3 7,057.7 7,575.3 6,396.6 5,901.8 6,139.5 5,524.1 8,430.9 9,191.5 8,758.9 7,944.8 7,407.2 6,866.7 845.6 376.9 778.9 396.0 984.1 470.6 967.5 456.3 847.8 461.0 — 246.7 4,930.2 4,996.7 6,534.8 6,672.2 6,421.7 6,365.5 14,583.6 15,363.1 16,748.4 16,040.8 15,137.7 13,478.9 2,612.2 2,310.7 1,340.3 1,585.3 1,743.7 1,010.8 439.1 347.1 (209.3) (204.2) (161.5) (301.1) $ 17,634.9 $ 18,020.9 $ 17,879.4 $ 17,421.9 $ 16,719.9 $ 14,188.6 $ 14,973.4 $ 16,055.8 $ 16,394.6 $ 15,589.2 $ 14,308.3 12.9% 9.1% 12.5% 13.4% 12.8% $ 17,827.9 $ 17,950.1 $ 17,650.6 $ 17,070.8 $ 15,454.3 11.3% 11.2% 11.6% 12.0% 12.7% 10 bps (30) bps 40 bps (a) See our reconciliation below of the eﬀ ective income tax rate as reported to the eﬀ ective income tax rate excluding certain items aﬀ ecting comparability for the tax impact of each item aﬀ ecting comparability. (b) Sum of current year and previous year aft er-tax adjustments. (c) See “Glossary” on page 85 of this report for deﬁ nition. 2016 Annual Report 35 In Millions As reported Mark-to-market eﬀ ects (b) Divestitures (gain) (c) Tax items (d) Acquisition Venezuela currency devaluation (b) Restructuring costs (f) Project-related costs (f) Intangible asset impairment (f) As adjusted Eﬀ ective tax rate: As reported As adjusted Sum of adjustments to income taxes Average number of common Eﬀ ective Income Tax Rate Excluding Certain Items Aﬀ ecting Comparability We believe this measure provides useful information to investors because it is important for assessing the eﬀ ective tax rate excluding certain items aﬀ ecting comparability and presents the income tax eﬀ ects of certain items aﬀ ecting comparability. Eﬀ ective income tax rates excluding certain items aﬀ ecting comparability are calculated as follows: May 29, 2016 May 31, 2015 May 25, 2014 May 26, 2013 May 27, 2012 May 29, 2011 May 30, 2010 Fiscal Year Ended Pretax Pretax Earnings Income Earnings Income Earnings Income Earnings Income Earnings (a) (a) Taxes (a) Taxes (a) Taxes (a) Taxes Pretax Pretax Pretax Pretax Pretax Income Earnings Income Earnings (a) (a) Taxes Taxes Income Taxes $2,403.6 $755.2 $1,761.9 $586.8 $2,655.0 $883.3 $2,534.9 $741.2 $2,210.5 $709.6 $2,428.2 $721.1 $2,204.5 $771.2 (62.8) (23.2) 89.7 33.2 (48.5) (18.0) (4.4) (1.6) 104.2 38.6 (95.2) (35.2) (148.2) (82.2) — — — — — (65.5) (29.5) (78.6) — — — — — 85.4 — — — — integration costs (e) — — 16.0 5.6 — — 12.3 3.5 11.2 1.5 — 229.8 57.5 — 69.0 20.7 8.0 — 62.2 4.4 343.5 125.8 13.2 4.9 3.6 — — — 25.2 18.6 — 4.4 2.7 — — — 260.0 83.1 — — — — — — 100.6 36.3 — — — — $2,479.9 $739.5 $2,492.3 $760.8 $2,606.8 $840.2 $2,586.6 $835.6 $2,426.5 $786.0 $2,337.4 $776.4 $2,243.0 $750.4 — — — — 4.4 — — 88.9 — — 1.6 — — — 7.1 — — 2.6 — (35.0) — — — — 31.4 11.6 — — — — 31.4% 29.8% 33.3% 30.5% 33.3% 32.2% 29.2% 32.3% $(15.7) $174.0 $(43.1) $94.4 32.1% 32.4% $76.4 666.7 shares - diluted EPS 611.9 618.8 645.7 665.6 Impact of income tax adjustments on diluted EPS excluding certain items aﬀ ecting comparability $0.03 $(0.28) $0.07 $(0.14) $(0.11) (a) Earnings before income taxes and aft er-tax earnings from joint ventures. (b) See Note 7 to the Consolidated Financial Statements on page 56 of this report. (c) See Note 3 to the Consolidated Financial Statements on page 50 of this report. (d) Th e ﬁ scal 2015 tax item is related to the one-time repatriation of historical foreign earnings in ﬁ scal 2015. Th e ﬁ scal 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, ﬁ scal 2013 includes changes in deferred taxes associated with the Medicare Part D subsidies related to the Patient Protection and Aﬀ ordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010. (e) Integration costs resulting from the acquisitions of Annie’s in ﬁ scal 2015, Yoki in ﬁ scal 2013, and Yoplait SAS and Yoplait Marques SNC in ﬁ scal 2012. (f) See Note 4 to the Consolidated Financial Statements on page 51 of this report. 36 General Mills Free Cash Flow Conversion Rate and Total Cash Returned to Shareholders as a Percentage of Free Cash Flow We believe these measures provide useful information to investors because they are important for assessing our eﬃ - ciency in converting earnings to cash and returning cash to shareholders. Th e calculation of free cash ﬂ ow conver- sion rate and net cash provided by operating activities conversion rate, its equivalent GAAP measure follows: In Millions 2016 2015 2014 2013 2012 2011 2010 Fiscal Year Net earnings, including earnings attributable to redeemable and $ 1,736.8 noncontrolling interests as reported Mark-to-market, net of tax (a) (39.6) $ Divestiture (gain), net of tax (b) (66.0) $ Tax items (c) — Acquisition integration costs, net of tax (b) — Venezuela currency devaluation, net of tax (a) — Restructuring costs, net of tax (d) $ 160.8 Project-related costs, net of tax (d) 36.8 $ Intangible asset impairment, net of tax (e) — Adjusted net earnings, including earnings attributable to redeemable and noncontrolling interests Net cash provided by operating activities, as reported Purchases of land, buildings, and equipment Free cash ﬂ ow Net cash provided by operating activities conversion rate Free cash ﬂ ow conversion rate $ (729.3) $ 1,900.5 $ 1,828.8 $ 2,629.8 151% 104% $ 1,259.4 56.5 $ — 78.6 $ 10.4 $ 8.0 $ $ 217.7 $ 8.3 $ 176.9 $ 1,861.3 (30.5) $ (36.0) $ — — 57.8 3.6 — — $ $ $ 1,892.5 (2.8) $ — (85.4) 8.8 20.8 15.9 — — $ $ $ $ $ $ 1,589.1 65.6 $ — — 9.7 — 64.3 — — $ $ $ 1,803.5 $ 1,535.0 4.5 $ — 35.0 — — 19.8 — — (60.0) $ — (88.9) $ — — 2.8 $ — — $ $ 1,815.8 $ 1,856.2 $ 1,849.8 $ 1,728.7 $ 1,657.4 $ 1,594.3 $ 2,542.8 $ 2,541.0 $ 2,926.0 $ 2,407.2 $ 1,531.1 $ 2,185.1 (712.4) $ $ (649.9) $ 1,830.4 $ 1,877.5 $ 2,312.1 $ 1,731.3 $ 882.3 $ 1,535.2 (675.9) $ (613.9) $ (663.5) $ (648.8) $ 202% 101% 137% 101% 155% 125% 151% 100% 85% 53% 142% 96% Rolling 3 Years, In Millions Fiscal 2014-2016 Fiscal 2013-2015 Fiscal 2012-2014 Fiscal 2011-2013 Fiscal 2010-2012 Adjusted earnings, including earnings attributable to redeemable and noncontrolling interests Free cash ﬂ ow, rolling 3 years Free cash ﬂ ow conversion rate, rolling 3 years $ 5,500.8 5,608.4 $ 5,521.8 6,020.0 $ 5,434.7 5,920.9 $ 5,235.9 4,925.7 $ 4,980.4 4,148.8 102% 109% 109% 94% 83% Th e calculation of total cash returned to shareholders as a percentage of free cash ﬂ ow follows: In Millions Fiscal Year 2016 2015 2014 Dividends paid Purchases of common stock for treasury Proceeds from common stock issued on exercised options Total cash returned to shareholders Total cash returned to shareholders as a percentage of free cash ﬂ ow Total cash returned to shareholders as a percentage of free cash ﬂ ow – cumulative 2014-2016 $ 1,071.7 606.7 (171.9) $ 1,506.5 79% 110% $ 1,017.7 $ 983.3 1,745.3 1,161.9 (108.1) (163.7) $ 2,015.9 $ 2,620.5 140% 110% (a) See Note 7 to the Consolidated Financial Statements on page 56 of this report. (b) See Note 3 to the Consolidated Financial Statements on page 50 of this report. (c) Th e ﬁ scal 2015 tax item is related to the one-time repatriation of historical foreign earnings in ﬁ scal 2015. Th e ﬁ scal 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, ﬁ scal 2013 includes changes in deferred taxes associated with the Medicare Part D subsidies related to the Patient Protection and Aﬀ ordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010. (d) See Note 4 to the Consolidated Financial Statements on page 51 of this report. (e) See Note 6 to the Consolidated Financial Statements on page 54 of this report. See our reconciliation above of the eﬀ ective income tax rate as reported to the eﬀ ective income tax rate excluding certain items aﬀ ecting comparability for the tax impact of each item aﬀ ecting comparability. 2016 Annual Report 37 Adjusted Operating Proﬁ t as a Percent of Net Sales Excluding Certain Items Aﬀ ecting Comparability We believe this measure provides useful information to investors because it is important for assessing our operating proﬁ t mar- gin on a comparable basis. Adjusted operating proﬁ t excludes certain items aﬀ ecting comparability. Percent of Net Sales 2016 2015 Fiscal Year 2014 2013 2012 $2,707.4 16.3% $2,077.3 11.8% $2,957.4 16.5% $2,851.8 16.0% $2,562.4 15.4% Operating proﬁ t as reported Mark-to-market eﬀ ects (a) Divestitures (gain) (b) Acquisition integration costs (c) Venezuela currency devaluation (d) Restructuring costs (e) Project-related costs (e) (62.8) (0.4) 89.7 0.5 (148.2) (0.9) — — — — — — 16.0 0.1 8.0 — 229.8 1.4 343.5 1.9 57.5 0.4 13.2 0.1 Intangible asset impairment (f) — — 260.0 1.5 (48.5) (0.3) (65.5) (0.4) — — 62.2 0.4 3.6 — — — — — (4.4) — — — 12.3 0.1 25.2 0.1 18.6 0.1 — — — — 104.2 0.6 — — 11.2 0.1 — — 100.6 0.6 — — — — Adjusted operating proﬁ t $2,783.7 16.8% $2,807.7 15.9% $2,909.2 16.2% $2,903.5 16.3% $2,778.4 16.7% (a) See Note 7 to the Consolidated Financial Statements on page 56 of this report. (b) See Note 3 to the Consolidated Financial Statements on page 50 of this report. (c) Integration costs resulting from the acquisitions of Annie’s in ﬁ scal 2015, Yoki in ﬁ scal 2013, and Yoplait SAS and Yoplait Marques SNC in ﬁ scal 2012. (d) See Note 7 to the Consolidated Financial Statements on page 56 of this report. (e) See Note 4 to the Consolidated Financial Statements on page 51 of this report. (f) See Note 6 to the Consolidated Financial Statements on page 54 of this report. 38 General Mills CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Th is report contains or incorporates by reference for- ward-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 ﬁ l- ings with the SEC and in our reports to shareholders. The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “plan,” “project,” or similar expressions identify “for- ward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertain- ties that could cause actual results to diﬀ er 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 aﬀ ect our ﬁ nancial performance and could cause our actual results in future periods to diﬀ er materially from any current opinions or statements. Our future results could be aﬀ ected by a variety of factors, such as: competitive dynamics in the con- sumer foods industry and the markets for our products, including new product introductions, advertising activ- ities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inﬂ ation rates, interest rates, tax rates, or the avail- ability 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 dispo- sitions of businesses or assets; changes in capital struc- ture; changes in the legal and regulatory environment, including labeling and advertising regulations and liti- gation; 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 sig- niﬁ cant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; eﬀ ectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; consolidation in the retail environment; changes in purchasing and inventory levels of signiﬁ cant customers; ﬂ uctuations in the cost and availability of supply chain resources, including raw materials, packaging, and energy; disrup- tions or ineﬃ ciencies in the supply chain; eﬀ ectiveness of restructuring and cost savings initiatives; volatility in the market value of derivatives used to manage price risk for certain commodities; beneﬁ t 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 con- ditions, including currency rate ﬂ uctuations; and politi- cal 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 2016 Form 10-K, which could also aﬀ ect our future results. We undertake no obligation to publicly revise any forward-looking statements to reﬂ ect events or circum- stances aft er the date of those statements or to reﬂ ect the occurrence of anticipated or unanticipated events. 2016 Annual Report 39 Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk stemming from changes in interest and foreign exchange rates and commod- ity and equity prices. Changes in these factors could cause ﬂ uctuations in our earnings and cash ﬂ ows. In the normal course of business, we actively manage our exposure to these market risks by entering into vari- ous hedging transactions, authorized under established policies that place clear controls on these activities. Th e 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 ﬁ nancial instruments. For information on interest rate, foreign exchange, commodity price, and equity instrument risk, please see Note 7 to the Consolidated Financial Statements on page 56 of this report. VALUE AT RISK Th e estimates in the table below are intended to mea- sure 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. Th e models assumed normal market conditions and used a 95 percent conﬁ - dence level. Th e VAR calculation used historical interest and for- eign exchange rates, and commodity and equity prices from the past year to estimate the potential volatility and correlation of these rates in the future. Th e market data were drawn from the RiskMetrics™ data set. Th e calculations are not intended to represent actual losses in fair value that we expect to incur. Further, since the hedging instrument (the derivative) inversely cor- relates with the underlying exposure, we would expect that any loss or gain in the fair value of our derivatives would be generally oﬀ set by an increase or decrease in the fair value of the underlying exposure. Th e positions included in the calculations were: debt; investments; interest rate swaps; foreign exchange forwards; com- modity swaps, futures and options; and equity instru- ments. Th e calculations do not include the underlying foreign exchange and commodities or equity-related positions that are oﬀ set by these market-risk-sensitive instruments. Th e table below presents the estimated maximum potential VAR arising from a one-day loss in fair value for our interest rate, foreign currency, commodity, and equity market-risk-sensitive instruments outstanding as of May 29, 2016, and May 31, 2015, and the average fair value impact during the year ended May 29, 2016. In Millions Fair Value Impact May 29, 2016 Average During Fiscal 2016 Interest rate instruments $33.3 Foreign currency instruments 27.6 Commodity instruments Equity instruments 3.3 1.7 $30.7 24.4 3.7 1.6 May 31, 2015 $25.1 17.9 3.7 1.2 40 General Mills Reports of Management and Independent Registered Public Accounting Firm REPORT OF MANAGEMENT RESPONSIBILITIES Th e management of General Mills, Inc. is responsible for the fairness and accuracy of the consolidated ﬁ nan- cial statements. Th e statements have been prepared in accordance with accounting principles that are gener- ally accepted in the United States, using management’s best estimates and judgments where appropriate. Th e ﬁ nancial information throughout the Annual Report on Form 10-K is consistent with our consolidated ﬁ nancial statements. Management has established a system of inter- nal controls that provides reasonable assurance that assets are adequately safeguarded and transactions are recorded accurately in all material respects, in accor- dance with management’s authorization. We maintain a strong audit program that independently evaluates the adequacy and eﬀ ectiveness 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 ﬁ nancial reporting. Th ese formally stated and regularly commu- nicated policies demand highly ethical conduct from all employees. Th e Audit Committee of the Board of Directors meets regularly with management, internal auditors, and our independent registered public accounting ﬁ rm to review internal control, auditing, and ﬁ nancial reporting mat- ters. Th e independent registered public accounting ﬁ rm, internal auditors, and employees have full and free access to the Audit Committee at any time. Th e Audit Committee reviewed and approved the Company’s annual financial statements. The Audit Committee recommended, and the Board of Directors approved, that the consolidated ﬁ nancial statements be included in the Annual Report. Th e Audit Committee also appointed KPMG LLP to serve as the Company’s independent registered public accounting firm for ﬁ scal 2017. K. J. Powell Chairman of the Board and Chief Executive Oﬃ cer D. L. Mulligan Executive Vice President and Chief Financial Oﬃ cer June 30, 2016 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Th e Board of Directors and Stockholders General Mills, Inc.: We have audited the accompanying consolidated balance sheets of General Mills, Inc. and subsidiaries as of May 29, 2016 and May 31, 2015, and the related consolidated statements of earnings, comprehensive income, total equity and redeemable interest, and cash ﬂ ows for each of the ﬁ scal years in the three-year period ended May 29, 2016. In connection with our audits of the consolidated ﬁ nancial statements, we have audited the accompany- ing ﬁ nancial statement schedule. We also have audited General Mills, Inc.’s internal control over ﬁ nancial report- ing as of May 29, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). General Mills, Inc.’s man- agement is responsible for these consolidated ﬁ nancial statements and ﬁ nancial statement schedule, for main- taining eﬀ ective internal control over ﬁ nancial reporting, and for its assessment of the eﬀ ectiveness of internal control over ﬁ nancial reporting, included in Item 9a Management’s Report on Internal Control over Financial Reporting in our 2016 Form 10-K. Our responsibility is to express an opinion on these consolidated ﬁ nancial state- ments and ﬁ nancial statement schedule and an opinion on the Company’s internal control over ﬁ nancial report- ing based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Th ose standards require that we plan and perform the audits to obtain reasonable assur- ance about whether the ﬁ nancial statements are free of material misstatement and whether eﬀ ective internal control over ﬁ nancial reporting was maintained in all material respects. Our audits of the consolidated ﬁ nan- cial statements included examining, on a test basis, evi- dence supporting the amounts and disclosures in the ﬁ nancial statements, assessing the accounting princi- ples used and signiﬁ cant estimates made by manage- ment, and evaluating the overall ﬁ nancial statement presentation. Our audit of internal control over ﬁ nan- cial reporting included obtaining an understanding of internal control over ﬁ nancial reporting, assessing the risk that a material weakness exists, and testing and 2016 Annual Report 41 evaluating the design and operating eﬀ ectiveness 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 ﬁ nancial reporting is a process designed to provide reasonable assurance regarding the reliability of ﬁ nancial reporting and the preparation of ﬁ nancial statements for external pur- poses in accordance with generally accepted accounting principles. A company’s internal control over ﬁ nancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in rea- sonable detail, accurately and fairly reﬂ ect the transac- tions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁ nan- cial statements in accordance with generally accepted accounting principles, and that receipts and expendi- tures of the Company are being made only in accor- dance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unautho- rized acquisition, use, or disposition of the Company’s assets that could have a material eﬀ ect on the ﬁ nancial statements. misstatements. Also, projections of any evaluation of eﬀ ectiveness 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 ﬁ nancial statements referred to above present fairly, in all material respects, the ﬁ nancial position of General Mills, Inc. and subsid- iaries as of May 29, 2016 and May 31, 2015, and the results of their operations and their cash ﬂ ows for each of the ﬁ scal years in the three-year period ended May 29, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the accom- panying ﬁ nancial statement schedule, when considered in relation to the basic consolidated ﬁ nancial state- ments taken as a whole, presents fairly, in all material respects, the information set forth therein. Also in our opinion, General Mills, Inc. maintained, in all material respects, eﬀ ective internal control over ﬁ nancial report- ing as of May 29, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, internal control over financial reporting may not prevent or detect Minneapolis, Minnesota June 30, 2016 42 General Mills 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 proﬁ t Interest, net Earnings before income taxes and aft er-tax earnings from joint ventures Income taxes Aft er-tax earnings from joint ventures Net earnings, including earnings attributable to redeemable and noncontrolling interests 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 ﬁ nancial statements. Fiscal Year 2016 2015 2014 $ 16,563.1 $ 17,630.3 $ 17,909.6 10,733.6 3,118.9 11,681.1 3,328.0 11,539.8 3,474.3 (148.2) 151.4 2,707.4 303.8 2,403.6 755.2 88.4 1,736.8 39.4 — 543.9 2,077.3 315.4 1,761.9 586.8 84.3 1,259.4 38.1 (65.5) 3.6 2,957.4 302.4 2,655.0 883.3 89.6 1,861.3 36.9 $ 1,697.4 $ 1,221.3 $ 1,824.4 $ $ $ 2.83 2.77 1.78 $ $ $ 2.02 1.97 1.67 $ $ $ 2.90 2.83 1.55 Consolidated Statements of Comprehensive Income GENERAL MILLS, INC. AND SUBSIDIARIES In Millions Fiscal Year 2016 2015 2014 Net earnings, including earnings attributable to redeemable and noncontrolling interests $ 1,736.8 $ 1,259.4 $ 1,861.3 Other comprehensive income (loss), net of tax: Foreign currency translation Net actuarial income (loss) Other fair value changes: Securities Hedge derivatives Reclassiﬁ cation 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 ﬁ nancial statements. (108.7) (325.9) 0.1 16.0 (9.5) 128.6 (957.9) (358.4) 0.8 4.1 4.9 105.1 (299.4) (1,201.4) (11.3) 206.0 0.3 5.0 (4.6) 107.6 303.0 1,437.4 58.0 2,164.3 41.5 (192.9) 94.9 $ 1,395.9 $ 250.9 $ 2,069.4 2016 Annual Report 43 Consolidated Balance Sheets GENERAL MILLS, INC. AND SUBSIDIARIES In Millions, Except Par Value ASSETS Current assets: Cash and cash equivalents Receivables Inventories 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 157.8 and 155.9 Accumulated other comprehensive loss Total stockholders’ equity Noncontrolling interests Total equity Total liabilities and equity See accompanying notes to consolidated ﬁ nancial statements. 44 General Mills May 29, 2016 May 31, 2015 $ 763.7 $ 334.2 1,360.8 1,386.7 1,413.7 1,540.9 399.0 423.8 3,937.2 3,685.6 3,743.6 3,783.3 8,741.2 8,874.9 4,538.6 4,677.0 751.7 811.2 $ 21,712.3 $ 21,832.0 $ 2,046.5 $ 1,684.0 1,103.4 1,000.4 269.8 615.8 1,595.0 1,589.9 5,014.7 4,890.1 7,057.7 7,575.3 1,399.6 1,450.2 2,087.6 1,744.8 15,559.6 15,660.4 845.6 778.9 75.5 75.5 1,177.0 1,296.7 12,616.5 11,990.8 (6,326.6) (6,055.6) (2,612.2) (2,310.7) 4,930.2 4,996.7 376.9 396.0 5,307.1 5,392.7 $ 21,712.3 $ 21,832.0 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 754.6 $75.5 $1,166.6 Shares Amount Accumulated Other Retained Comprehensive Noncontrolling Interests Earnings Loss Total Redeemable Interest Equity (113.8) $(3,687.2) $ 10,702.6 1,824.4 $(1,585.3) 245.0 $456.3 $7,128.5 2,094.3 24.9 $967.5 70.0 (739.8) 30.0 (35.6) (1,775.3) 13.8 7.1 243.1 (91.3) 108.5 4.2 (739.8) (1,745.3) 256.9 (91.3) 108.5 4.2 17.6 17.6 (28.2) (28.2) 754.6 75.5 1,231.8 (142.3) (5,219.4) 11,787.2 (1,340.3) 470.6 7,005.4 (4.2) (49.2) 984.1 1,221.3 (970.4) (70.0) 180.9 (122.9) (22.3) (1,161.9) (1,017.7) (38.1) 8.7 325.7 (80.8) 111.1 83.2 (10.5) (1,017.7) (1,161.9) 287.6 (80.8) 111.1 83.2 20.7 (9.9) 20.7 0.6 (83.2) 754.6 75.5 1,296.7 (155.9) (6,055.6) 11,990.8 (2,310.7) 396.0 5,392.7 778.9 (25.9) (25.9) 0.9 1,697.4 (301.5) 11.2 1,407.1 30.3 (10.7) (606.7) (1,071.7) (46.3) 8.8 335.7 (63.3) 84.8 (91.5) (3.4) (1,071.7) (606.7) 289.4 (63.3) 84.8 (91.5) (4.5) (1.1) 91.5 (29.2) (29.2) (55.1) In Millions, Except per Share Data Balance as of May 26, 2013 Total comprehensive income Cash dividends declared ($1.17 per share) Shares purchased Stock compensation plans (includes income tax beneﬁ ts of $69.3) Unearned compensation related to restricted stock unit awards Earned compensation Decrease in redemption value of redeemable interest Addition of noncontrolling interest Distributions to redeemable and noncontrolling interest holders Balance as of May 25, 2014 Total comprehensive income (loss) Cash dividends declared ($1.67 per share) Shares purchased Stock compensation plans (includes income tax beneﬁ ts of $74.6) Unearned compensation related to stock unit awards Earned compensation Decrease in redemption value of redeemable interest Addition of noncontrolling interest Acquisition of interest in subsidiary Distributions to redeemable and noncontrolling interest holders Balance as of May 31, 2015 Total comprehensive income (loss) Cash dividends declared ($1.78 per share) Shares purchased Stock compensation plans (includes income tax beneﬁ ts of $94.1) Unearned compensation related to stock unit awards Earned compensation Increase in redemption value of redeemable interest Acquisition of interest in subsidiary Distributions to redeemable and noncontrolling interest holders Balance as of May 29, 2016 754.6 $75.5 $1,177.0 (157.8) $(6,326.6) $12,616.5 $(2,612.2) $376.9 $5,307.1 $845.6 See accompanying notes to consolidated ﬁ nancial statements. 2016 Annual Report 45 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 Aft er-tax earnings from joint ventures Distributions of earnings from joint ventures Stock-based compensation Deferred income taxes Tax beneﬁ t on exercised options Pension and other postretirement beneﬁ t plan contributions Pension and other postretirement beneﬁ t plan costs Divestitures (gain), net Restructuring, impairment, and other exit costs Changes in current assets and liabilities, excluding the eﬀ ects of acquisitions and divestitures 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 aﬃ liates, net Proceeds from disposal of land, buildings, and equipment Proceeds from divestitures Exchangeable note Other, net Net cash provided (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 beneﬁ t on exercised options Purchases of common stock for treasury Dividends paid Addition of noncontrolling interest Distributions to noncontrolling and redeemable interest holders Other, net Net cash used by ﬁ nancing activities Eﬀ ect 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 eﬀ ects of acquisitions and divestitures: Receivables Inventories Prepaid expenses and other current assets Accounts payable Other current liabilities Changes in current assets and liabilities See accompanying notes to consolidated ﬁ nancial statements. 46 General Mills Fiscal Year 2016 2015 2014 $ 1,736.8 $ 1,259.4 $ 1,861.3 608.1 (88.4) 75.1 89.8 120.6 (94.1) (47.8) 118.1 (148.2) 107.2 258.2 (105.6) 2,629.8 (729.3) (84.0) 63.9 4.4 828.5 21.1 (11.2) 93.4 (323.8) 542.5 (1,000.4) 171.9 94.1 (606.7) (1,071.7) — (84.3) (7.2) (2,285.6) (8.1) 429.5 334.2 $ 763.7 $ (6.9) (146.1) (0.1) 318.7 92.6 $ 258.2 588.3 (84.3) 72.6 106.4 25.3 (74.6) (49.5) 91.3 — 531.1 214.7 (137.9) 2,542.8 (712.4) (822.3) (102.4) 11.0 — 27.9 (4.0) (1,602.2) (509.8) 2,253.2 (1,145.8) 163.7 74.6 (1,161.9) (1,017.7) — (25.0) (16.1) (1,384.8) (88.9) (533.1) 867.3 $ 334.2 $ 6.8 (24.2) (50.5) 145.8 136.8 $ 214.7 585.4 (89.6) 90.5 108.5 172.5 (69.3) (49.7) 124.1 (65.5) (18.8) (32.2) (76.2) 2,541.0 (663.5) — (54.9) 6.6 121.6 29.3 (0.9) (561.8) 572.9 1,673.0 (1,444.8) 108.1 69.3 (1,745.3) (983.3) 17.6 (77.4) (14.2) (1,824.1) (29.2) 125.9 741.4 $ 867.3 $ (41.0) (88.3) 10.5 191.5 (104.9) (32.2) $ Notes to Consolidated Financial Statements GENERAL MILLS, INC. AND SUBSIDIARIES NOTE 1. BASIS OF PRESENTATION AND RECLASSIFICATIONS Shipping costs associated with the distribution of ﬁ nished product to our customers are recorded as cost of sales, and are recognized when the related ﬁ nished product is shipped to and accepted by the customer. Basis of Presentation Our Consolidated Financial Statements include the accounts of General Mills, Inc. and all subsidiaries in which we have a controlling financial interest. Intercompany transactions and accounts, including any noncontrolling and redeemable interests’ share of those transactions, are eliminated in consolidation. Our ﬁ scal year ends on the last Sunday in May. Fiscal years 2016 and 2014 consisted of 52 weeks, while ﬁ scal year 2015 consisted of 53 weeks. Change in Reporting Period As part of a long-term plan to conform the ﬁ scal year ends of all our opera- tions, in ﬁ scal 2016 we changed the reporting period of Yoplait SAS and Yoplait Marques SNC within our International segment and Annie’s, Inc. (Annie’s) within our U.S. Retail segment from an April ﬁ scal year-end to a May ﬁ scal year-end to match our ﬁ scal calen- dar. Accordingly, in ﬁ scal 2016, our results included 13 months of results from the aﬀ ected operations. Th e impact of these changes was not material to our con- solidated results of operations. Our General Mills Brasil Alimentos Ltda (Yoki) and India businesses remain on an April ﬁ scal year end. Certain reclassiﬁ cations to our previously reported ﬁ nancial 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 All inventories in the United States other than grain are valued at the lower of cost, using the last-in, ﬁ rst-out (LIFO) method, or market. Grain inven- tories 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 ﬁ rst-in, ﬁ rst-out (FIFO) method, or market. Land, Buildings, Equipment, and Depreciation Land is recorded at historical cost. Buildings and equipment, including capitalized interest and internal engineering costs, are recorded at cost and depreciated over esti- mated useful lives, primarily using the straight-line method. Ordinary maintenance and repairs are charged to cost of sales. Buildings are usually depreciated over 40 years, and equipment, furniture, and soft ware are usually depreciated over 3 to 10 years. Fully depreciated assets are retained in buildings and equipment until disposal. When an item is sold or retired, the accounts are relieved of its cost and related accumulated depre- ciation and the resulting gains and losses, if any, are recognized in earnings. As of May 29, 2016, assets held for sale were insigniﬁ cant. 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 ﬂ ows from the operation and disposition of the asset group are less than the carrying amount of the asset group. Asset groups have identiﬁ able cash ﬂ ows and are largely independent of other asset groups. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value. Fair value is measured using a discounted cash ﬂ ow model or independent appraisals, as appropriate. Goodwill and Other Intangible Assets Goodwill is not subject to amortization and is tested for impairment annually and whenever events or changes in circum- stances indicate that impairment may have occurred. In ﬁ scal 2016, we changed the date of our annual goodwill and indeﬁ nite-lived intangible asset impairment assess- ment from the ﬁ rst day of the third quarter to the ﬁ rst day of the second quarter to more closely align with the timing of our annual long-range planning process. Impairment testing is performed for each of our report- ing 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 oft en requires allocation of shared or corporate 2016 Annual Report 47 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 deter- mined based on a discounted cash ﬂ ow model. Growth rates for sales and proﬁ ts are determined using inputs from our long-range planning process. We also make estimates of discount rates, perpetuity growth assump- tions, market comparables, and other factors. We evaluate the useful lives of our other intangible assets, mainly brands, to determine if they are ﬁ nite or indeﬁ nite-lived. Reaching a determination on useful life requires signiﬁ cant judgments and assumptions regard- ing the future eﬀ ects 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 deﬁ - nite lives are amortized on a straight-line basis, over their useful lives, generally ranging from 4 to 30 years. Our indeﬁ nite-lived intangible assets, mainly intan- gible assets primarily associated with the Pillsbury, Totino’s, Progresso, Yoplait, Old El Paso, Yoki, Häagen-Dazs, and Annie’s brands, are also tested for impairment annually and whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Our estimate of the fair value of the brands is based on a discounted cash ﬂ ow model using inputs which included projected revenues from our long-range plan, assumed royalty rates that could be payable if we did not own the brands, and a dis- count rate. Our ﬁ nite-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 ﬂ ows from the operation and disposition of the asset are less than the carrying amount of the asset. Assets generally have identiﬁ able cash ﬂ ows and are largely independent of other assets. Measurement 48 General Mills of an impairment loss would be based on the excess of the carrying amount of the asset over its fair value. Fair value is measured using a discounted cash ﬂ ow model or other similar valuation model, as appropriate. Investments in Unconsolidated Joint Ventures Our investments in companies over which we have the abil- ity to exercise signiﬁ cant inﬂ uence are stated at cost plus our share of undistributed earnings or losses. We receive royalty income from certain joint ventures, incur various expenses (primarily research and develop- ment), and record the tax impact of certain joint ven- ture operations that are structured as partnerships. In addition, we make advances to our joint ventures in the form of loans or capital investments. We also sell certain raw materials, semi-ﬁ nished goods, and ﬁ nished 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, as a results of ongoing operating losses, projected decreases in earnings, increases in the weighted average cost of capital, or signiﬁ cant business disruptions. Th e signif- icant assumptions used to estimate fair value include revenue growth and proﬁ tability, royalty rates, capi- tal 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 invest- ment was less than the carrying value of the invest- ment, 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 impair- ment is other than temporary. Redeemable Interest We have a 51 percent controlling interest in Yoplait SAS, a consolidated entity. Sodiaal International (Sodiaal) holds the remaining 49 percent interest in Yoplait SAS. Sodiaal has the ability to put all or a portion of its redeemable interest to us at fair value once per year, up to three times before December 2024. Th is 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 reclassiﬁ ed 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 second quarter of ﬁ scal 2016, we adjusted the redeemable interest’s redemption value based on a discounted cash ﬂ ow model. Th e signiﬁ cant assump- tions used to estimate the redemption value include projected revenue growth and proﬁ tability from our long-range plan, capital spending, depreciation, taxes, foreign currency exchange rates, and a discount rate. 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 redemp- tion rates. Trade promotions are recorded based on esti- mated participation and performance levels for oﬀ ered programs at the time of sale. We generally do not allow a right of return. However, on a limited case-by-case basis with prior approval, we may allow customers to return product. In limited circumstances, product returned in saleable condition is resold to other cus- tomers or outlets. Receivables from customers gener- ally do not bear interest. Terms and collection patterns vary around the world and by channel. Th e allowance for doubtful accounts represents our estimate of prob- able non-payments and credit losses in our existing receivables, as determined based on a review of past due balances and other speciﬁ c 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 ﬁ rst time that the adver- tising takes place. Research and Development All expenditures for research and development (R&D) are charged against earnings in the period incurred. R&D includes expen- ditures for new product and manufacturing process innovation, and the annual expenditures are comprised primarily of internal salaries, wages, consulting, and supplies attributable to R&D activities. Other costs include depreciation and maintenance of research facil- ities, including assets at facilities that are engaged in pilot plant activities. Foreign Currency Translation For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of these opera- tions are translated at the period-end exchange rates. Income statement accounts are translated using the average exchange rates prevailing during the period. Translation adjustments are reﬂ ected within accumu- lated other comprehensive loss (AOCI) in stockholders’ equity. Gains and losses from foreign currency transac- tions 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 instru- ments designated as net investment hedges. Th ese gains and losses are recorded in AOCI. Derivative Instruments All derivatives are recognized on our 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 earn- ings or other comprehensive income, based on whether the instrument is designated and eﬀ ective as a hedge transaction and, if so, the type of hedge transaction. Gains or losses on derivative instruments reported in AOCI are reclassiﬁ ed to earnings in the period the hedged item aﬀ ects earnings. If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCI are reclassiﬁ ed to earnings at that time. Any ineﬀ ectiveness 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-based 2016 Annual Report 49 compensation is recognized straight line over the vest- ing period. Our stock-based compensation expense is recorded in selling, general and administrative (SG&A) expenses and cost of sales in our Consolidated Statements of Earnings and allocated to each report- able segment in our segment results. Certain equity-based compensation plans contain provisions that accelerate vesting of awards upon retirement, 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 generally recognized immediately for awards granted to retire- ment-eligible individuals or over the period from the grant date to the date retirement eligibility is achieved, if less than the stated vesting period. We report the beneﬁ ts of tax deductions in excess of recognized compensation cost as a ﬁ nancing cash ﬂ ow, thereby reducing net operating cash ﬂ ows and increas- ing net ﬁ nancing cash ﬂ ows. Defined Benefit Pension, Other Postretirement Beneﬁ t, and Postemployment Beneﬁ t Plans We spon- sor several domestic and foreign deﬁ ned beneﬁ t plans to provide pension, health care, and other welfare ben- eﬁ ts to retired employees. Under certain circumstances, we also provide accruable beneﬁ ts to former or inactive employees in the United States, Canada, and Mexico and members of our Board of Directors, including sever- ance and certain other beneﬁ ts payable upon death. We recognize an obligation for any of these beneﬁ ts that vest or accumulate with service. Postemployment ben- eﬁ ts 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 beneﬁ t plans are unfunded. We recognize the underfunded or overfunded status of a deﬁ ned beneﬁ t pension 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 aﬀ ect reported amounts of assets and liabilities, disclosures of contin- gent assets and liabilities at the date of the ﬁ nancial statements, and the reported amounts of revenues and 50 General Mills expenses during the reporting period. Th ese estimates include our accounting for promotional expenditures, valuation of long-lived assets, intangible assets, redeem- able interest, stock-based compensation, income taxes, and deﬁ ned beneﬁ t pension, other postretirement ben- eﬁ t and postemployment beneﬁ t plans. Actual results could diﬀ er from our estimates. Other New Accounting Standards In the ﬁ rst quar- ter of ﬁ scal 2015, we adopted new accounting require- ments on the financial statement presentation of unrecognized tax beneﬁ ts when a net operating loss, a similar tax loss, or a tax credit carryforward exists. Th e adoption of this guidance did not have an impact on our results of operations or ﬁ nancial position. In the second quarter of ﬁ scal 2015, we adopted new accounting requirements for share-based payment awards issued based upon speciﬁ c performance targets. Th e adoption of this guidance did not have a material impact on our results of operations or ﬁ nancial position. In the ﬁ rst quarter of ﬁ scal 2016, we adopted new accounting requirements for the classiﬁ cation of debt issuance costs presented in the balance sheet as a direct reduction from the carrying amount of the debt liability. This presentation change has been imple- mented retroactively. Th e adoption of this guidance did not have a material impact on our ﬁ nancial position. In the fourth quarter of fiscal 2016, we adopted new accounting requirements for the presentation of deferred tax assets and liabilities, requiring noncurrent classiﬁ cation for all deferred tax assets and liabilities on the statement of ﬁ nancial position. Th is presentation change has been implemented retroactively. Th e adop- tion of this guidance did not have a material impact on our ﬁ nancial position. NOTE 3. ACQUISITION AND DIVESTITURES During the fourth quarter of ﬁ scal 2016, we sold our General Mills de Venezuela CA subsidiary to a third party and exited our business in Venezuela. As a result of this transaction, we recorded a pre-tax loss of $37.6 million. In addition, we sold our General Mills Argentina S.A. foodservice business in Argentina to a third party and recorded a pre-tax loss of $14.8 million. During the second quarter of ﬁ scal 2016, we sold our North American Green Giant product lines for $822.7 million in cash, and we recorded a pre-tax gain of $199.1 million. We received net cash proceeds of $788.0 million aft er transaction related costs. Aft er the divestiture, we retained a brand intangible asset on our Consolidated Balance Sheets of $30.1 million related to our continued use of the Green Giant brand in certain markets out- side of North America. During the second quarter of ﬁ scal 2015, we acquired Annie’s, a publicly traded food company headquartered in Berkeley, California, for an aggregate purchase price of $821.2 million, which we funded by issuing debt. We consolidated Annie’s into our Consolidated Balance Sheets and recorded goodwill of $589.8 million, an indeﬁ nite lived intangible asset for the Annie’s brand of $244.5 million, and a ﬁ nite lived customer relationship asset of $23.9 million. Th e pro forma eﬀ ects of this acquisition were not material. NOTE 4. RESTRUCTURING, IMPAIRMENT, AND OTHER EXIT COSTS Intangible Asset Impairment In fiscal 2015, we recorded a $260.0 million charge related to the impair- ment of our Green Giant brand intangible asset in restructuring, impairment, and other exit costs. See Note 6 for additional information. Restructuring Initiatives 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 savings and/or reduced depreciation. Th ese activities result in various restruc- turing costs, including asset write-oﬀ s, exit charges including severance, contract termination fees, and decommissioning and other costs. Accelerated depre- ciation associated with restructured assets, as used in the context of our disclosures regarding restructuring activity, refers to the increase in depreciation expense caused by shortening the useful life or updating the salvage value of depreciable ﬁ xed assets to coincide with the end of production under an approved restruc- turing plan. Any impairment of the asset is recognized immediately in the period the plan is approved. We are currently pursuing several multi-year restruc- turing initiatives designed to increase our eﬃ ciency and focus our business behind our key growth strate- gies. Charges recorded in ﬁ scal 2016 and 2015 related to these initiatives were as follows: In Millions Asset Severance Write-oﬀ s Fiscal 2016 Pension Accelerated Related Depreciation Other Total Asset Severance Write-oﬀ s Pension Accelerated Related Depreciation Other Total Fiscal 2015 Project Compass $ 45.4 $ — $ 1.4 $ — $ 7.9 $ 54.7 $ — $ — $ — $ — $ — $ — Project Catalyst (8.7) 1.2 — — — (7.5) 121.5 12.3 Project Century 30.9 30.7 19.1 76.5 25.4 182.6 44.3 42.3 6.6 31.2 — 8.0 148.4 53.1 10.9 181.8 Combination of certain operational facilities — — — — — — 13.0 0.7 — — 0.2 13.9 Charges associated with restructuring actions previously announced — — — — — — (0.6) — — — — (0.6) Total $ 67.6 $ 31.9 $ 20.5 $ 76.5 $ 33.3 $ 229.8 $ 178.2 $ 55.3 $ 37.8 $ 53.1 $ 19.1 $ 343.5 2016 Annual Report 51 In the ﬁ rst quarter of ﬁ scal 2016, we approved Project Compass, a restructuring plan designed to enable our International segment to accelerate long-term growth through increased organizational effectiveness and reduced administrative expense. In connection with this project, we expect to eliminate approximately 725 to 775 positions. We expect to incur approximately $60 million of net expenses relating to this action of which approximately $60 million will be cash. We recorded $54.7 million of restructuring charges relating to this action in ﬁ scal 2016. We expect this action to be com- pleted by the end of ﬁ scal 2017. Project Century (Century) began in ﬁ scal 2015 as a review of our North American manufacturing and dis- tribution network to streamline operations and identify potential capacity reductions. In the second quarter of ﬁ scal 2016, we broadened the scope of Project Century to identify opportunities to streamline our supply chain outside of North America. As part of the expanded project, we approved a restructuring plan to close man- ufacturing facilities in our International segment sup- ply chain located in Berwick, United Kingdom and East Tamaki, New Zealand. Th ese actions aﬀ ected approxi- mately 285 positions. We expect to incur total restruc- turing charges of approximately $41 million relating to these actions, of which approximately $20 million will be cash. We recorded $30.0 million of restructur- ing charges relating to these actions in ﬁ scal 2016. We expect these actions to be completed by the end of ﬁ s- cal 2018. As part of Century, in the first quarter of fiscal 2016, we approved a restructuring plan to close our West Chicago, Illinois cereal and dry dinner manufac- turing plant in our U.S. Retail segment supply chain. Th is action will aﬀ ect approximately 500 positions, and we expect to incur approximately $117 million of net expenses relating to this action, of which approxi- mately $53 million will be cash. We recorded $79.2 mil- lion of restructuring charges relating to this action in ﬁ scal 2016. We expect this action to be completed by the end of ﬁ scal 2019. As part of Century, in the ﬁ rst quarter of ﬁ scal 2016, we approved a restructuring plan to close our Joplin, Missouri snacks plant in our U.S. Retail segment supply chain. Th is action aﬀ ected approximately 120 positions, and we incurred $6.3 million of net expenses relating to this action, of which less than $1 million was cash. We recorded $6.3 million of restructuring charges relating 52 General Mills to this action in ﬁ scal 2016. Th is action was completed in ﬁ scal 2016. As part of Century, in the third quarter of ﬁ scal 2015, we approved a restructuring plan to reduce our refrig- erated dough capacity and exit our Midland, Ontario, Canada and New Albany, Indiana facilities, which sup- port our U.S. Retail, International, and Convenience Stores and Foodservice supply chains. Th e Midland action will affect approximately 100 positions, and we expect to incur approximately $23 million of net expenses relating to this action, of which approxi- mately $16 million will be cash. We recorded $2.7 mil- lion of restructuring charges relating to this action in ﬁ scal 2016. We recorded $6.5 million of restructuring charges relating to this action in ﬁ scal 2015. Th e New Albany action will aﬀ ect approximately 400 positions, and we expect to incur approximately $82 million of net expenses relating to this action of which approxi- mately $40 million will be cash. We recorded $17.1 mil- lion of restructuring charges relating to this action in ﬁ scal 2016 and $51.3 million in ﬁ scal 2015. We expect these actions to be completed by the end of ﬁ scal 2018. As part of Century, in the second quarter of ﬁ scal 2015, we approved a restructuring plan to consolidate yogurt manufacturing capacity and exit our Methuen, Massachusetts facility in our U.S. Retail segment and Convenience Stores and Foodservice segment supply chains. Th is action aﬀ ected approximately 175 posi- tions. We expect to incur approximately $58 million of net expenses relating to this action of which approxi- mately $12 million will be cash. We recorded $15.6 mil- lion of restructuring charges relating to this action in ﬁ scal 2016 and $43.6 million in ﬁ scal 2015. Th is action was largely completed in ﬁ scal 2016. As part of Century, in the second quarter of ﬁ s- cal 2015, we approved a restructuring plan to elimi- nate excess cereal and dry mix capacity and exit our Lodi, California facility in our U.S. Retail supply chain. Th is action aﬀ ected approximately 430 positions. We incurred $93.8 million of net expenses relating to this action of which $20 million was cash. We recorded $30.6 million of restructuring charges relating to this action in ﬁ scal 2016 and $63.2 million in ﬁ scal 2015. Th is action was completed in ﬁ scal 2016. In addition to the actions taken at certain facilities described above, we incurred $1.1 million of restructur- ing charges in ﬁ scal 2016, relating to Century, and $17.2 million in ﬁ scal 2015, of which $6 million was cash. During the second quarter of ﬁ scal 2015, we approved Project Catalyst, a restructuring plan to increase orga- nizational eﬀ ectiveness and reduce overhead expense. In connection with this project, we eliminated approx- imately 750 positions primarily in the United States. We incurred $140.9 million of net expenses relating to these actions of which $118 million will be cash. In ﬁ s- cal 2016, we reduced the estimate of charges related to this action by $7.5 million. We recorded $148.4 million of restructuring charges relating to this action in ﬁ s- cal 2015. Th ese actions were largely completed in ﬁ scal 2015. During the ﬁ rst quarter of ﬁ scal 2015, we approved a plan to combine certain Yoplait and General Mills operational facilities within our International segment to increase eﬃ ciencies and reduce costs. Th is action will aﬀ ect approximately 240 positions. We expect to incur approximately $15 million of net expenses relat- ing to this action of which approximately $12 million will be cash. We recorded $13.9 million of restructuring charges relating to this action in ﬁ scal 2015. We expect this action to be completed in ﬁ scal 2017. In ﬁ scal 2014, we recorded $3.6 million of restruc- turing charges related to a productivity and cost sav- ings plan approved in the fourth quarter of ﬁ scal 2012. Th ese restructuring actions were completed in ﬁ scal 2014. In ﬁ scal 2016, we paid $122.6 million in cash relating to restructuring initiatives. In ﬁ scal 2015, we paid $63.6 million in cash relating to restructuring initiatives. In ﬁ scal 2014, we paid $22.4 million in cash related to restructuring actions. In addition to restructuring charges, we expect to incur approximately $109 million of additional proj- ect-related costs, which will be recorded in cost of sales, all of which will be cash. We recorded project-related costs in cost of sales of $57.5 million in ﬁ scal 2016 and $13.2 million in ﬁ scal 2015. In addition, we paid $54.5 million in cash in ﬁ scal 2016 and $9.7 million in ﬁ scal 2015 for project-related costs. Restructuring charges and project-related costs are classiﬁ ed in our Consolidated Statements of Earnings as follows: In Millions Cost of sales Restructuring, impairment, and other exit costs Total restructuring charges Project-related costs classiﬁ ed Fiscal Year 2016 2015 2014 $ 78.4 $ 59.6 $ — 151.4 229.8 283.9 343.5 3.6 3.6 in cost of sales $ 57.5 $ 13.2 $ — Th e roll forward of our restructuring and other exit cost reserves, included in other current liabilities, is as follows: In Millions Reserve balance as of May 26, 2013 2014 charges, including foreign currency translation Utilized in 2014 Reserve balance as of May 25, 2014 2015 charges, including foreign currency translation Utilized in 2015 Reserve balance as of May 31, 2015 2016 charges, including foreign currency translation Utilized in 2016 Reserve balance as Other Severance Termination Exit Costs Contract Total $ 19.5 $ — $ — $ 19.5 6.4 (22.4) 3.5 — — — — — 6.4 (22.4) — 3.5 176.4 (61.3) 0.6 — 8.1 185.1 (6.5) (67.8) 118.6 0.6 1.6 120.8 64.3 (109.3) 1.6 (0.7) 70.2 4.3 (4.4) (114.4) of May 29, 2016 $ 73.6 $1.5 $1.5 $ 76.6 Th e 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 reﬂ ected in our restructuring and other exit cost reserves on our Consolidated Balance Sheets. 2016 Annual Report 53 NOTE 5. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES We have a 50 percent equity interest in Cereal Partners Worldwide (CPW), which manufactures and markets ready-to-eat cereal products in more than 130 coun- tries 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). Th is joint venture manufactures and markets Häagen-Dazs ice cream products and fro- zen 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: In Millions Cumulative investments Goodwill and other intangibles Aggregate advances included in cumulative investments May 29, 2016 $518.9 469.2 May 31, 2015 $530.6 465.1 In Millions Current assets Noncurrent assets Current liabilities Noncurrent liabilities May 29, 2016 May 31, 2015 $ 814.1 $ 800.1 959.9 962.1 1,457.3 1,484.8 81.7 118.2 NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS Th e components of goodwill and other intangible assets are as follows: May 29, 2016 May 31, 2015 $ 8,741.2 $ 8,874.9 In Millions Goodwill Other intangible assets: Intangible assets not subject to amortization: Brands and other indeﬁ nite-lived intangibles 4,147.5 4,262.1 Intangible assets subject to amortization: Franchise agreements, customer relationships, and other ﬁ nite-lived intangibles Less accumulated amortization 536.9 (145.8) Intangible assets subject to amortization 391.1 544.0 (129.1) 414.9 300.3 390.3 Total Other intangible assets 4,538.6 4,677.0 $13,279.8 $13,551.9 Based on the carrying value of ﬁ nite-lived intangi- ble assets as of May 29, 2016, amortization expense for each of the next ﬁ ve ﬁ scal years is estimated to be approximately $28 million. Joint venture earnings and cash ﬂ ow activity follows: Fiscal Year In Millions 2016 2015 2014 Sales to joint ventures $ 10.5 $ 11.6 $12.1 Net advances (repayments) (63.9) 102.4 Dividends received 75.1 72.6 54.9 90.5 Summary combined ﬁ nancial information for the joint ventures on a 100 percent basis follows: In Millions Net sales: CPW HDJ Total net sales Gross margin Earnings before income taxes Earnings aft er income taxes Fiscal Year 2016 2015 2014 $1,674.8 $1,894.5 $2,107.9 369.4 370.2 386.9 2,044.2 2,264.7 2,494.8 867.6 234.8 186.7 925.4 1,030.3 220.9 170.7 219.1 168.8 54 General Mills Th e changes in the carrying amount of goodwill for ﬁ scal 2014, 2015, and 2016 are as follows: Th e changes in the carrying amount of other intangi- ble assets for ﬁ scal 2014, 2015, and 2016 are as follows: currency translation — Balance as of May 25, 2014 5,829.2 589.8 Acquisition Other activity, primarily foreign currency translation — Balance as of In Millions Balance as of U.S. Joint Retail International Foodservice Ventures Convenience Stores and Total In Millions Balance as of U.S. Retail International Joint Ventures Total $3,312.4 $1,638.2 $64.5 $5,015.1 May 26, 2013 $5,841.4 $1,387.0 $921.1 $472.7 $8,622.2 Divestiture Other activity, primarily foreign (12.2) — — — (12.2) May 26, 2013 Other activity, primarily foreign currency translation Balance as of (4.9) 3.6 0.5 (0.8) 15.0 — 25.5 40.5 1,402.0 921.1 498.2 8,650.5 — — — 589.8 May 25, 2014 Acquisition Impairment charge Other activity, primarily foreign 3,307.5 268.4 (260.0) 1,641.8 — — 65.0 5,014.3 268.4 (260.0) — — (268.7) — (96.7) (365.4) May 31, 2015 6,419.0 1,133.3 921.1 401.5 8,874.9 Acquisitions Divestitures Other activity, 54.1 (180.2) 29.4 (6.2) — — — — 83.5 (186.4) primarily foreign currency translation — Balance as of (35.5) — 4.7 (30.8) currency translation Balance as of May 31, 2015 Acquisitions Divestiture Other activity, primarily amortization and foreign currency translation Balance as of (4.0) (340.3) (1.4) (345.7) 3,311.9 23.1 (119.6) 1,301.5 7.0 — 63.6 4,677.0 30.1 (119.6) — — (3.7) (44.6) (0.6) (48.9) May 29, 2016 $6,292.9 $1,121.0 $921.1 $406.2 $8,741.2 May 29, 2016 $3,211.7 $1,263.9 $63.0 $4,538.6 In ﬁ scal 2015, we reorganized certain reporting units within our U.S. Retail operating segment. Our chief operating decision maker continues to assess perfor- mance and make decisions about resources to be allo- cated to our segments at the U.S. Retail, International, and Convenience Stores and Foodservice operating seg- ment level. We performed our ﬁ scal 2016 impairment assess- ment as of the ﬁ rst day of the second quarter of ﬁ s- cal 2016, 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 carry- ing values. As of our ﬁ scal 2016 assessment date, there was no impairment of any of our indeﬁ nite-lived intangible assets as their related fair values were substantially in excess of the carrying values, except for the Mountain High and Uncle Toby’s brand assets. Th e excess fair value above the carrying value of these brand assets is as follows: In Millions Mountain High Uncle Toby’s Excess Fair Value Above Carrying Value 20% 11% Carrying Value $35.4 $52.2 Our strategies for ﬁ scal 2017 and ﬁ scal 2018 will focus our growth investments on our brands and platforms with the strongest proﬁ table growth potential. As a result, certain parts of our U.S. Retail segment could experience reduced future sales projections. We per- formed a sensitivity analysis for certain brand intangi- ble assets and determined that, while not impaired as of May 29, 2016, the Progresso and Food Should Taste 2016 Annual Report 55 Good brands had risk of decreasing coverage. We will continue to monitor these businesses. In ﬁ scal 2015, we made a strategic decision to redi- rect certain resources supporting our Green Giant busi- ness in our U.S. Retail segment to other businesses within the segment. Th erefore, future sales and prof- itability projections in our long-range plan for this business declined. As a result of this triggering event, we performed an interim impairment assessment of the Green Giant brand intangible asset as of May 31, 2015, and determined that the fair value of the brand asset no longer exceeded the carrying value of the asset. Signiﬁ cant assumptions used in that assessment included our updated long-range cash flow projec- tions for the Green Giant business, an updated royalty rate, a weighted-average cost of capital, and a tax rate. We recorded a $260.0 million impairment charge in restructuring, impairment, and other exit costs in ﬁ scal 2015 related to this asset. NOTE 7. FINANCIAL INSTRUMENTS, RISK MANAGEMENT ACTIVITIES, AND FAIR VALUES Financial Instruments Th e carrying values of cash and cash equivalents, receiv- ables, accounts payable, other current liabilities, and notes payable approximate fair value. Marketable secu- rities are carried at fair value. As of May 29, 2016 and May 31, 2015, a comparison of cost and market val- ues of our marketable debt and equity securities is as follows: Cost Fair Value Gross Gains Gross Losses Fiscal Year Fiscal Year Fiscal Year Fiscal Year In Millions 2016 2015 2016 2015 2016 2015 2016 2015 Available for sale: Debt securities $165.7 $2.6 $165.8 $ 2.6 $0.1 $ — $ — $ — Equity securities 1.8 1.8 8.4 8.3 6.6 6.5 — — Total $167.5 $4.4 $174.2 $10.9 $6.7 $6.5 $ — $ — Th ere were no realized gains or losses from sales of available-for-sale marketable securities. Gains and losses are determined by speciﬁ c identiﬁ cation. Classiﬁ cation of marketable securities as current or noncurrent is dependent upon our intended holding period, and/or the security’s maturity date. Th e aggregate unrealized gains and losses on available-for-sale securities, net of tax eﬀ ects, are classiﬁ ed in AOCI within stockholders’ equity. 56 General Mills Scheduled maturities of our marketable securities are as follows: In Millions Under 1 year (current) Equity securities Total Available for Sale Cost $ 165.7 1.8 $ 167.5 Market Value $ 165.8 8.4 $ 174.2 As of May 29, 2016, cash and cash equivalents total- ing $7.5 million were pledged as collateral for derivative contracts. As of May 29, 2016, $9.1 million of certain accounts receivable were pledged as collateral against a foreign uncommitted line of credit. Th e fair value and carrying amounts of long-term debt, including the current portion, were $8,629.0 mil- lion and $8,161.1 million, respectively, as of May 29, 2016. Th e fair value of long-term debt was estimated using market quotations and discounted cash ﬂ ows based on our current incremental borrowing rates for similar types of instruments. Long-term debt is a Level 2 liability in the fair value hierarchy. 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 var- ious derivative transactions (e.g., futures, options, and swaps) pursuant to our established policies. Commodity Price Risk Many commodities we use in the production and dis- tribution 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), dairy products, 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 oﬀ set 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 account- ing 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 ﬂ ow hedge accounting, we believe that these instruments are eﬀ ective in achieving our objective of providing cer- tainty 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 aﬀ ects earnings. At that time we reclassify the gain or loss from unal- located corporate items to segment operating proﬁ t, allowing our operating segments to realize the eco- nomic eﬀ ects of the derivative without experiencing any resulting mark-to-market volatility, which remains in unallocated corporate items. Unallocated corporate items for ﬁ scal 2016, 2015 and 2014 included: In Millions 2016 2015 2014 Net loss on mark-to-market valuation of commodity positions $ (69.1) $ (163.7) $ (4.9) Fiscal Year Net loss on commodity positions reclassiﬁ ed from unallocated corporate items to segment operating proﬁ t 127.9 84.4 51.2 Net mark-to-market revaluation of certain grain inventories 4.0 (10.4) 2.2 Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items $ 62.8 $ (89.7) $ 48.5 As of May 29, 2016, the net notional value of com- modity derivatives was $295.4 million, of which $189.1 million related to agricultural inputs and $106.3 mil- lion related to energy inputs. Th ese 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 ﬁ xed-rate debt, and existing and future issuances of ﬂ oating-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 vola- tility of our ﬁ nancing costs, and to achieve a desired proportion of ﬁ xed rate versus ﬂ oating-rate debt, based on current and projected market conditions. Generally under these swaps, we agree with a counterparty to exchange the diﬀ erence between ﬁ xed-rate and ﬂ oat- ing-rate interest amounts based on an agreed upon notional principal amount. Floating Interest Rate Exposures — Floating-to- ﬁ xed interest rate swaps are accounted for as cash ﬂ ow hedges, as are all hedges of forecasted issuances of debt. Eﬀ ectiveness is assessed based on either the perfectly eﬀ ective hypothetical derivative method or changes in the present value of interest payments on the underlying debt. Eﬀ ective gains and losses deferred to AOCI are reclassiﬁ ed into earnings over the life of the associated debt. Ineﬀ ective gains and losses are recorded as net interest. Th e amount of hedge ineﬀ ec- tiveness was less than $1 million in each of ﬁ scal 2016, 2015, and 2014. Fixed Interest Rate Exposures — Fixed-to-ﬂ oating interest rate swaps are accounted for as fair value hedges with eﬀ ectiveness 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. Ineﬀ ective gains and losses on these derivatives and the under- lying hedged items are recorded as net interest. Th e amount of hedge ineﬀ ectiveness was less than $1 mil- lion in ﬁ scal 2016, an $1.6 million gain in ﬁ scal 2015, and less than $1 million in ﬁ scal 2014. In ﬁ scal 2016, in advance of planned debt ﬁ nancing, we entered into $400.0 million of treasury locks with an average ﬁ xed rate of 2.1 percent due February 15, 2017. In advance of planned debt ﬁ nancing, we entered into €600.0 million of forward starting swaps with an average ﬁ xed rate of 0.5 percent. All of these forward starting swaps were cash settled for $6.5 million in ﬁ s- cal 2015, coincident with the issuance of our €500 mil- lion 8-year ﬁ xed-rate notes and €400 million 12-year ﬁ xed-rate notes. 2016 Annual Report 57 Th e following table summarizes the notional amounts and weighted-average interest rates of our interest rate derivatives. Average ﬂ oating rates are based on rates as of the end of the reporting period. In Millions May 29, 2016 May 31, 2015 Pay-ﬂ oating swaps - notional amount $ 1,000.0 $ 1,250.0 Average receive rate Average pay rate 1.8% 1.1% 1.6% 0.7% Th e swap contracts mature as follows: In Millions 2018 2020 Total Pay Floating $ 500.0 500.0 $ 1,000.0 In ﬁ scal 2015, we entered into swaps to convert $500.0 million of 1.4 percent fixed-rate notes due October 20, 2017, and $500.0 million of 2.2 percent ﬁ xed-rate notes due October 21, 2019, to ﬂ oating rates. In advance of planned debt ﬁ nancing, we entered into $250.0 million of treasury locks with an average ﬁ xed rate of 1.99 percent. All of these treasury locks were cash settled for $17.9 million in ﬁ scal 2014, coin- cident with the issuance of our $500.0 million 10-year ﬁ xed-rate notes. As of May 29, 2016, the pre-tax amount of cash-set- tled interest rate hedge gain or loss remaining in AOCI, which will be reclassiﬁ ed to earnings over the remain- ing term of the related underlying debt, follows: In Millions 5.7% notes due February 15, 2017 5.65% notes due February 15, 2019 3.15% notes due December 15, 2021 1.0% notes due April 27, 2023 3.65% notes due February 15, 2024 1.5% notes due April 27, 2027 5.4% notes due June 15, 2040 4.15% notes due February 15, 2043 Net pre-tax hedge loss in AOCI Gain/(Loss) $ (1.6) 1.4 (54.9) (1.7) 13.8 (3.6) (13.4) 10.5 $ (49.5) 58 General Mills Interest rate contracts Foreign exchange contracts Equity Th e following tables reconcile the net fair values of assets and liabilities subject to oﬀ setting arrangements that are recorded in our Consolidated Balance Sheets to the net fair values that could be reported in our Consolidated Balance Sheets: May 29, 2016 Assets Gross Amounts Not Oﬀ set in the Balance Sheet (e) Liabilities Gross Amounts Not Oﬀ set in the Balance Sheet (e) Gross Gross Assets Amounts of Oﬀ set in Recognized Instruments Received Amount (c) Liabilities Cash Collateral Net Net the Balance Amounts of Financial Sheet (a) Liabilities (b) Instruments Pledged Amount (d) Net Cash Collateral Gross Gross Liabilities Amounts of Oﬀ set in Recognized the Balance Amounts of Financial Net In Millions Assets Sheet (a) Assets (b) Commodity contracts $ 4.4 $ — $ 4.4 $ (3.9) $ — $ 0.5 $(22.2) $ — $(22.2) $ 3.9 $7.5 $(10.8) 8.5 — 8.5 — — 8.5 (3.0) — (3.0) — — (3.0) contracts 2.4 25.4 — — 25.4 (8.7) — 16.7 (13.7) — (13.7) 8.7 — (5.0) 2.4 — — 2.4 — — — — — — Total $40.7 $ — $40.7 $(12.6) $ — $28.1 $(38.9) $ — $(38.9) $12.6 $7.5 $(18.8) (a) Includes related collateral oﬀ set in our Consolidated Balance Sheets. (b) Net fair value as recorded in our Consolidated Balance Sheets. (c) Fair value of assets that could be reported net in our Consolidated Balance Sheets. (d) Fair value of liabilities that could be reported net in our Consolidated Balance Sheets. (e) Fair value of assets and liabilities reported on a gross basis in our Consolidated Balance Sheets. May 31, 2015 Assets Gross Amounts Not Oﬀ set in the Balance Sheet (e) Liabilities Gross Amounts Not Oﬀ set in the Balance Sheet (e) Gross Gross Assets Amounts of Oﬀ set in Recognized Instruments Received Amount (c) Liabilities Cash Collateral Net Net the Balance Amounts of Financial Sheet (a) Liabilities (b) Instruments Pledged Amount (d) Net Cash Collateral Gross Gross Liabilities Amounts of Oﬀ set in Recognized the Balance Amounts of Financial Net In Millions Assets Sheet (a) Assets (b) Commodity contracts $ 10.1 $ — $ 10.1 $ (1.3) $ — $ 8.8 $ (59.4) $ — $ (59.4) $ 1.3 $40.1 $(18.0) Interest rate contracts Foreign exchange contracts Total 4.0 — 4.0 — — 4.0 — — — — — — 25.9 — 25.9 (12.5) — 13.4 (65.3) — (65.3) 12.5 — (52.8) $40.0 $ — $40.0 $(13.8) $ — $26.2 $(124.7) $ — $(124.7) $13.8 $40.1 $(70.8) (a) Includes related collateral oﬀ set in our Consolidated Balance Sheets. (b) Net fair value as recorded in our Consolidated Balance Sheets. (c) Fair value of assets that could be reported net in our Consolidated Balance Sheets. (d) Fair value of liabilities that could be reported net in our Consolidated Balance Sheets. (e) Fair value of assets and liabilities reported on a gross basis in our Consolidated Balance Sheets. 2016 Annual Report 59 we recorded an $8 million foreign exchange loss. In the fourth quarter of ﬁ scal 2016, we sold our General Mills de Venezuela CA subsidiary to a third party and exited our business in Venezuela. 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 29, 2016, the net notional amount of our equity swaps was $113.5 million. Th ese swap contracts mature in ﬁ scal 2017. Foreign Exchange Risk Foreign currency ﬂ uctuations aﬀ ect our net invest- ments in foreign subsidiaries and foreign currency cash ﬂ ows related to third party purchases, intercompany loans, product shipments, and foreign-denominated debt. We are also exposed to the translation of for- eign currency earnings to the U.S. dollar. Our principal exposures are to the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, Chinese ren- minbi, euro, Japanese yen, Mexican peso, and Swiss franc. We primarily use foreign currency forward con- tracts to selectively hedge our foreign currency cash ﬂ ow exposures. We also generally swap our foreign-de- nominated commercial paper borrowings and nonfunc- tional currency intercompany loans back to U.S. dollars or the functional currency of the entity with foreign exchange exposure. Th e gains or losses on these deriv- atives oﬀ set the foreign currency revaluation gains or losses recorded in earnings on the associated borrow- ings. We generally do not hedge more than 18 months in advance. As of May 29, 2016, the net notional value of foreign exchange derivatives was $997.7 million. Th e amount of hedge ineﬀ ectiveness was less than $1 million in each of ﬁ scal 2016, 2015, and 2014. We also have many net investments in foreign sub- sidiaries that are denominated in euros. We previously hedged a portion of these net investments by issu- ing euro-denominated commercial paper and foreign exchange forward contracts. In ﬁ scal 2016, we entered into a net investment hedge for a portion of our net investment in foreign operations denominated in euros by issuing €500.0 million of euro-denominated bonds. In ﬁ scal 2015, we entered into a net investment hedge for a portion of our net investment in foreign opera- tions denominated in euros by issuing €900.0 million of euro-denominated bonds. In ﬁ scal 2014, we entered into a net investment hedge for a portion of our net investment in foreign operations denominated in euros by issuing €500.0 million of euro-denominated bonds. As of May 29, 2016, we had deferred net foreign cur- rency transaction losses of $20.1 million in AOCI asso- ciated with hedging activity. Venezuela is a highly inﬂ ationary economy and as such, we remeasured the value of the assets and liabil- ities of our former Venezuelan subsidiary based on the exchange rate at which we expected to remit dividends in U.S. dollars from the SIMADI market. In ﬁ scal 2015, 60 General Mills Fair Value Measurements and Financial Statement Presentation Th e 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 29, 2016 and May 31, 2015, were as follows: In Millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total May 29, 2016 May 29, 2016 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) Commodity contracts (c) (e) Grain contracts (c) (e) Total Other assets and liabilities reported at fair value: Marketable investments (a) (f) Long-lived assets (g) Total $ — $ 7.7 $ — $ 7.7 $ — $ (3.0) $ — $ (3.0) — 12.2 — 12.2 — (12.2) — (12.2) — 19.9 — 19.9 — (15.2) — (15.2) — 13.2 — 13.2 — (1.5) — (1.5) 2.6 1.7 — 4.3 (0.6) (21.6) — (22.2) — 1.8 — 1.8 — (5.5) — (5.5) 2.6 16.7 — 19.3 (0.6) (28.6) — (29.2) 8.4 165.8 — 174.2 — — — — — 26.0 — 26.0 — — — — 8.4 191.8 — 200.2 — — — — Total assets, liabilities, and derivative positions recorded at fair value $ 11.0 $ 228.4 $ — $ 239.4 $ (0.6) $ (43.8) $ — $ (44.4) (a) Th ese 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) Th ese contracts are recorded as prepaid expenses and other current assets or as other current liabilities, as appropriate, based on whether in a gain or loss position. (d) Based on observable market transactions of spot currency rates and forward currency prices. (e) Based on prices of futures exchanges and recently reported transactions in the marketplace. (f) Based on prices of common stock and bond matrix pricing. (g) We recorded $11.4 million in non-cash impairment charges in ﬁ scal 2016 to write down certain long-lived assets to their fair value. Fair value was based on recently reported transactions for similar assets in the marketplace. Th ese assets had a carrying value of $28.2 million and were associated with the restructuring actions described in Note 4. 2016 Annual Report 61 In Millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total May 31, 2015 May 31, 2015 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) Commodity contracts (c) (e) Grain contracts (c) (e) Total Other assets and liabilities reported at fair value: Marketable investments (a) (f) Long-lived assets (g) Indeﬁ nite-lived intangible asset (h) Total $ — $ 4.0 $ — $ 4.0 $ — $ — $ — $ — — — 25.5 29.5 — 25.5 — (23.3) — (23.3) — 29.5 — (23.3) — (23.3) — 0.4 — 0.4 7.2 2.9 — 10.1 — 3.3 — 3.3 — — — (42.0) — (42.0) (59.4) — (59.4) (7.8) — (7.8) 7.2 6.6 — 13.8 — (109.2) — (109.2) 8.3 — 2.6 37.8 — — 10.9 37.8 — — 154.3 154.3 8.3 40.4 154.3 203.0 — — — — — — — — — — — — — — — — Total assets, liabilities, and derivative positions recorded at fair value $15.5 $76.5 $154.3 $246.3 $ — $(132.5) $ — $(132.5) (a) Th ese 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) Th ese contracts are recorded as prepaid expenses and other current assets or as other current liabilities, as appropriate, based on whether in a gain or loss position. (d) Based on observable market transactions of spot currency rates and forward currency prices. (e) Based on prices of futures exchanges and recently reported transactions in the marketplace. (f) Based on prices of common stock and bond matrix pricing. (g) We recorded $30.3 million in non-cash impairment charges in ﬁ scal 2015 to write down certain long-lived assets to their fair value. Fair value was based on recently reported transactions for similar assets in the marketplace. Th ese assets had a carrying value of $68.1 million and were associated with the restructuring actions described in Note 4. (h) We recorded a $260.0 million non-cash impairment charge in ﬁ scal 2015 to write down our Green Giant brand asset to its fair value of $154.3 million. Th is asset had a carrying value of $414.3 million. See Note 6 for additional information. We did not signiﬁ cantly change our valuation techniques from prior periods. 62 General Mills Information related to our cash ﬂ ow hedges, fair value hedges, and other derivatives not designated as hedging instruments for the ﬁ scal years ended May 29, 2016 and May 31, 2015, follows: In Millions Derivatives in Cash Flow Hedging Relationships: Amount of gain (loss) recognized in other Interest Rate Foreign Exchange Contracts Contracts Equity Contracts Commodity Contracts Total Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 comprehensive income (OCI) (a) $ (2.6) $ (5.9) $21.2 $13.3 $ — $ — $ — $ — $18.6 $7.4 Amount of net gain (loss) reclassiﬁ ed from AOCI into earnings (a) (b) (10.6) (10.6) 22.1 5.0 — — — — 11.5 (5.6) Amount of net gain (loss) recognized in earnings (c) Derivatives in Fair Value Hedging Relationships: Amount of net gain recognized in earnings (d) Derivatives in Net Investment Hedging Relationships: Amount of loss recognized in OCI (a) Derivatives Not Designated as Hedging Instruments: Amount of net gain (loss) recognized in earnings (d) (a) Eﬀ ective portion. (0.1) (0.6) (0.7) 0.1 — — — — (0.8) (0.5) 0.1 1.6 — — — — — — 0.1 1.6 — — (0.2) (6.9) — — — — (0.2) (6.9) — — 1.1 (54.3) (4.5) 9.6 (56.1) (163.7) (59.5) (208.4) (b) Gain (loss) reclassiﬁ ed 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 ineﬀ ective 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 eﬀ ectiveness. (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. 2016 Annual Report 63 Amounts Recorded in Accumulated Other Comprehensive Loss As of May 29, 2016, the aft er-tax amounts of unreal- ized gains and losses in AOCI related to hedge deriva- tives follows: In Millions Aft er-Tax Gain/(Loss) Unrealized losses from interest rate cash ﬂ ow hedges $ (31.3) Unrealized gains from foreign currency cash ﬂ ow hedges 5.8 Aft er-tax loss in AOCI related to hedge derivatives $ (25.5) Th e net amount of pre-tax gains and losses in AOCI as of May 29, 2016, that we expect to be reclassiﬁ ed into net earnings within the next 12 months is $1.2 million of loss. Credit-Risk-Related Contingent Features Certain of our derivative instruments contain provi- sions 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 invest- ment grade, the counterparties to the derivative instru- ments could request full collateralization on derivative instruments in net liability positions. Th e aggregate fair value of all derivative instruments with credit-risk-re- lated contingent features that were in a liability posi- tion on May 29, 2016, was $21.9 million. We have posted $7.5 million of collateral under these contracts. If the credit-risk-related contingent features underlying these agreements had been triggered on May 29, 2016, we would have been required to post $14.4 million of collateral to counterparties. Concentrations Of Credit And Counterparty Credit Risk During fiscal 2016, customer concentration was as follows: No customer other than Wal-Mart accounted for 10 percent or more of our consolidated net sales. We enter into interest rate, foreign exchange, and certain commodity and equity derivatives, primarily with a diversiﬁ ed 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. Th ese transactions may expose us to potential losses due to the risk of nonperformance by these counter- parties; however, we have not incurred a material loss. We also enter into commodity futures transactions through various regulated exchanges. Th e amount of loss due to the credit risk of the counterparties, should the counterparties fail to per- form according to the terms of the contracts, is $14.8 million against which we do not hold collateral. Under the terms of our swap agreements, some of our trans- actions require collateral or other security to support ﬁ nancial 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 coun- terparty defaults. We oﬀ er certain suppliers access to a third party ser- vice that allows them to view our scheduled payments online. Th e third party service also allows suppliers to ﬁ nance advances on our scheduled payments at the sole discretion of the supplier and the third party. We have no economic interest in these ﬁ nancing arrange- ments and no direct relationship with the suppliers, the third party, or any ﬁ nancial institutions concerning this service. All of our accounts payable remain as obli- gations to our suppliers as stated in our supplier agree- ments. As of May 29, 2016, $537.0 million of our total accounts payable is payable to suppliers who utilize this third party service. Convenience Stores and Consolidated U.S. Retail International Foodservice Percent of total Wal-Mart: (a) Net sales Accounts receivable Five largest customers: Net sales 20% 30% 26% 5% 4% 8% 8% 53% 22% 45% (a) Includes Wal-Mart Stores, Inc. and its aﬃ liates. 64 General Mills NOTE 8. DEBT Notes Payable Th e components of notes payable and their respective weighted-average interest rates at the end of the periods were as follows: May 29, 2016 May 31, 2015 Weighted- average Interest Rate Notes Payable Weighted- average Interest Rate Notes Payable In Millions U.S. commercial paper $ — —% $432.0 Financial institutions 269.8 8.6 183.8 Total $269.8 8.6% $615.8 0.3% 9.5 3.0% To ensure availability of funds, we maintain bank credit lines suﬃ cient to cover our outstanding notes payable. Commercial paper is a continuing source of short-term ﬁ nancing. We have commercial paper pro- grams available to us in the United States and Europe. We also have uncommitted and asset-backed credit lines that support our foreign operations. Th e following table details the fee-paid committed and uncommitted credit lines we had available as of May 29, 2016: In Billions Credit facility expiring: May 2021 June 2019 Total committed credit facilities Uncommitted credit facilities Total committed and uncommitted Facility Amount Borrowed Amount $ 2.7 0.2 2.9 0.4 $ — 0.1 0.1 0.1 credit facilities $ 3.3 $ 0.2 In ﬁ scal 2016, we entered into a $2.7 billion fee-paid committed credit facility that is scheduled to expire in May 2021. Concurrent with the execution of this credit facility, we terminated our $1.7 billion and $1.0 billion credit facilities. In ﬁ scal 2015, our subsidiary, Yoplait S.A.S., entered into a €200.0 million fee-paid committed credit facility that is scheduled to expire in June 2019. Th e credit facilities contain covenants, including a requirement to maintain a ﬁ xed charge coverage ratio of at least 2.5 times. We were in compliance with all credit facility covenants as of May 29, 2016. Long-Term Debt In January 2016, we issued €500.0 million principal amount of ﬂ oating-rate notes due January 15, 2020. Interest on the notes are pay- able quarterly in arrears. Th e notes are not generally redeemable prior to maturity. Th ese notes are senior unsecured obligations that include a change of control repurchase provision. Th e net proceeds were used to repay a portion of our maturing long-term debt. In January 2016, we repaid $250 million of 0.875 per- cent ﬁ xed-rate notes and $750 million of ﬂ oating-rate notes. In April 2015, we issued €500.0 million principal amount of 1.0 percent ﬁ xed-rate notes due April 27, 2023 and €400.0 million principal amount of 1.5 per- cent ﬁ xed-rate notes due April 27, 2027. Interest on the notes is payable annually in arrears. Th e notes may be redeemed in whole, or in part, at our option at any time at the applicable redemption price. Th ese notes are senior unsecured obligations that include a change of control repurchase provision. Th e net proceeds were used for general corporate purposes and to reduce our commercial paper borrowings. In March 2015, we repaid $750.0 million of 5.2 per- cent notes. In October 2014, we issued $500.0 million aggregate principal amount of 1.4 percent ﬁ xed-rate notes due October 20, 2017 and $500.0 million aggregate princi- pal amount of 2.2 percent ﬁ xed-rate notes due October 21, 2019. Interest on the notes is payable semi-annually in arrears. Th e notes may be redeemed in whole, or in part, at our option at any time at the applicable redemp- tion price. Th e notes are senior unsecured obligations that include a change of control repurchase provision. Th e net proceeds were used to fund our acquisition of Annie’s and for general corporate purposes. In June 2014, our subsidiary, Yoplait S.A.S., issued €200.0 million principal amount of 2.2 percent ﬁ xed- rate senior notes due June 24, 2021 in a private placement oﬀ ering. Interest on the notes is payable semi-annually in arrears. Th e notes may be redeemed in whole, or in part, at our subsidiary’s option at any time at the applicable redemption price. Th e notes are senior unsecured obligations that include a change of control repurchase provision. Th e net proceeds were used to reﬁ nance existing debt. In June 2014, we repaid €290.0 million of float- ing-rate notes. 2016 Annual Report 65 A summary of our long-term debt is as follows: NOTE 9. REDEEMABLE AND NONCONTROLLING INTERESTS In Millions May 29, 2016 May 31, 2015 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 Euro-denominated 2.1% notes due November 16, 2020 555.8 549.4 Euro-denominated 1.0% notes due April 27, 2023 555.8 549.4 Floating-rate euro-denominated notes due January 15, 2020 1.4% notes due October 20, 2017 5.4% notes due June 15, 2040 4.15% notes due February 15, 2043 3.65% notes due February 15, 2024 2.2% notes due October 21, 2019 Floating-rate notes due January 29, 2016 Euro-denominated 1.5% notes due April 27, 2027 0.875% notes due January 29, 2016 Floating-rate notes due January 28, 2016 Euro-denominated 2.2% notes 555.8 500.0 500.0 500.0 500.0 500.0 — 500.0 500.0 500.0 500.0 500.0 — 500.0 444.6 — — 439.5 250.0 250.0 due June 24, 2021 221.0 219.7 Medium-term notes, 0.02% to 6.44%, due ﬁ scal 2017 or later 204.2 204.2 Other, including debt issuance costs and capital leases (26.1) (36.5) 8,161.1 8,575.7 Less amount due within one year (1,103.4) (1,000.4) Total long-term debt $7,057.7 $7,575.3 Principal payments due on long-term debt in the next ﬁ ve years based on stated contractual maturities, our intent to redeem, or put rights of certain note hold- ers are $1,103.4 million in ﬁ scal 2017, $604.7 million in ﬁ scal 2018, $1,150.4 million in ﬁ scal 2019, $1,056.0 mil- lion in ﬁ scal 2020, and $555.9 million in ﬁ scal 2021. Certain of our long-term debt agreements contain restrictive covenants. As of May 29, 2016, we were in compliance with all of these covenants. As of May 29, 2016, the $49.5 million pre-tax loss recorded in AOCI associated with our previously des- ignated interest rate swaps will be reclassiﬁ ed to net interest over the remaining lives of the hedged trans- actions. Th e amount expected to be reclassiﬁ ed from AOCI to net interest in ﬁ scal 2017 is a $10.0 million pre-tax loss. 66 General Mills Our principal redeemable and noncontrolling interests relate to our Yoplait SAS, Yoplait Marques SNC, Liberté Marques Sàrl, and General Mills Cereals, LLC (GMC) subsidiaries. In addition, we have six foreign subsid- iaries that have noncontrolling interests totaling $7.0 million as of May 29, 2016. We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl. Sodiaal holds the remaining interests in each of the entities. On the acquisition date, we recorded the $904.4 million fair value of Sodiaal’s 49 percent euro-denominated interest in Yoplait SAS as a redeemable interest on our Consolidated Balance Sheets. Sodiaal has the ability to put all or a portion of its redeemable interest to us at fair value once per year, up to three times before December 2024. 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 SAS pays dividends annually if it meets certain ﬁ nancial metrics set forth in its shareholders agreement. As of May 29, 2016, the redemption value of the euro-denominated redeemable interest was $845.6 million. On the acquisition dates, we recorded the $281.4 million fair value of Sodiaal’s 50 percent euro-denom- inated interest in Yoplait Marques SNC and 50 per- cent Canadian dollar-denominated interest in Liberté Marques Sàrl as noncontrolling interests on our Consolidated Balance Sheets. Yoplait Marques SNC earns a royalty stream through a licensing agree- ment with Yoplait SAS for the rights to Yoplait and related trademarks. Liberté Marques Sàrl earns a roy- alty stream through licensing agreements with cer- tain Yoplait group companies for the rights to Liberté and related trademarks. Th ese entities pay dividends annually based on their available cash as of their ﬁ scal year end. During ﬁ scal 2016, we paid $74.5 million of dividends to Sodiaal under the terms of the Yoplait SAS and Yoplait Marques SNC shareholder agreements. A subsidiary of Yoplait SAS has entered into an exclu- sive milk supply agreement for its European operations with Sodiaal at market-determined prices through July 1, 2021. Net purchases totaled $321.0 million for ﬁ scal 2016 and $271.3 million for ﬁ scal 2015. Th e holder of the GMC Class A Interests receives quarterly preferred distributions from available net income based on the application of a ﬂ oating preferred return rate to the holder’s capital account balance estab- lished in the most recent mark-to-market valuation (currently $251.5 million). On June 1, 2015, the ﬂ oating preferred return rate on GMC’s Class A interests was reset to the sum of three-month LIBOR plus 125 basis points. Th e preferred return rate is adjusted every three years through a negotiated agreement with the Class A Interest holder or through a remarketing auction. For ﬁ nancial reporting purposes, the assets, liabilities, results of operations, and cash ﬂ ows of our non-wholly owned subsidiaries are included in our Consolidated Financial Statements. Th e third-party investor’s share of the net earnings of these subsidiaries is reﬂ ected in net earnings attributable to redeemable and noncontrolling interests in our Consolidated Statements of Earnings. Our noncontrolling interests contain restrictive cove- nants. As of May 29, 2016, 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 May 6, 2014, 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. Th e authorization has no speciﬁ ed termination date. Share repurchases were as follows: In Millions 2016 2015 2014 Shares of common stock Aggregate purchase price 10.7 35.6 22.3 $ 606.7 $ 1,161.9 $ 1,774.4 Fiscal Year Th e 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 loss Other fair value changes: Securities Hedge derivatives Reclassiﬁ cation to earnings: Hedge derivatives (a) Amortization of losses and prior service costs (b) Other comprehensive income (loss) Total comprehensive income Pretax General Mills Tax Net Noncontrolling Interests Net Redeemable Interests Net Fiscal 2016 $ 1,697.4 $ 8.4 $ 31.0 $ (107.6) (514.2) $ — 188.3 0.2 16.5 (13.5) 206.8 (411.8) (0.1) (2.2) 2.5 (78.2) 110.3 (107.6) (325.9) 0.1 14.3 (11.0) 128.6 (301.5) $ 1,395.9 2.8 — — — — — 2.8 $ 11.2 (3.9) — — 1.7 1.5 — (0.7) $ 30.3 (a) Gain reclassiﬁ ed 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 reclassiﬁ ed from AOCI into earnings is reported in SG&A expense. 2016 Annual Report 67 In Millions Net earnings, including earnings attributable to redeemable and noncontrolling interests Other comprehensive loss: Foreign currency translation Net actuarial income Other fair value changes: Securities Hedge derivatives Reclassiﬁ cation 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 2015 $ 1,221.3 $ 8.2 $ 29.9 $ (727.9) (561.1) $ — 202.7 (727.9) (358.4) 1.3 13.6 0.7 (0.5) (4.8) 0.5 170.2 (1,103.2) (65.1) 132.8 0.8 8.8 1.2 105.1 (970.4) $ 250.9 (78.2) — — — — — (78.2) $ (70.0) (151.8) — — (4.7) 3.7 — (152.8) $ (122.9) (a) Loss reclassiﬁ ed 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 reclassiﬁ ed 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: Foreign currency translation Net actuarial income Other fair value changes: Securities Hedge derivatives Reclassiﬁ cation 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 2014 $ 1,824.4 $ 5.8 $ 31.1 $ (71.8) 327.2 $ — (121.2) 0.5 14.4 (4.7) 172.7 438.3 (0.2) (7.0) 0.2 (65.1) (193.3) (71.8) 206.0 0.3 7.4 (4.5) 107.6 245.0 $ 2,069.4 19.1 — — — — — 19.1 $ 24.9 41.4 — — (2.4) (0.1) — 38.9 $ 70.0 (a) Gain reclassiﬁ ed 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 reclassiﬁ ed from AOCI into earnings is reported in SG&A expense. 68 General Mills In ﬁ scal 2016, 2015, and 2014, except for reclassiﬁ - cations to earnings, changes in other comprehensive income (loss) were primarily non-cash items. 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 balances, net of tax eﬀ ects, were as follows: Fiscal Year 2016 2015 2014 In Millions May 29, 2016 May 31, 2015 Estimated fair values of stock options granted $7.24 $7.22 $6.03 $ (644.2) $ (536.6) Assumptions: 3.8 (25.5) 3.7 (28.8) Risk-free interest rate 2.4% 2.6% 2.6% Expected term 8.5 years 8.5 years 9.0 years Expected volatility Dividend yield 17.6% 3.2% 17.5% 3.1% 17.4% 3.1% Foreign currency translation adjustments Unrealized gain (loss) from: Securities Hedge derivatives Pension, other postretirement, and postemployment beneﬁ ts: Net actuarial loss Prior service credits (1,958.2) (1,756.1) 11.9 7.1 Accumulated other comprehensive loss $ (2,612.2) $ (2,310.7) NOTE 11. STOCK PLANS We use broad-based stock plans to help ensure that management’s interests are aligned with those of our shareholders. As of May 29, 2016, a total of 24.3 mil- lion shares were available for grant in the form of stock options, restricted stock, restricted stock units, and shares of unrestricted stock under the 2011 Stock Compensation Plan (2011 Plan) and the 2011 Compensation Plan for Non-Employee Directors. Th e 2011 Plan also provides for the issuance of cash-set- tled share-based units, stock appreciation rights, and performance-based stock awards. Stock-based awards now outstanding include some granted under the 2005, 2006, 2007, and 2009 stock plans, under which no fur- ther awards may be granted. Th e stock plans provide for potential accelerated vesting of awards upon retire- ment, termination, or death of eligible employees and directors. 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 exer- cise behavior, dividend yield, and the forfeiture rate. We estimate our future stock price volatility using the his- torical volatility over the expected term of the option, excluding time periods of volatility we believe a market- place 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 insuﬃ cient to pro- vide 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. Th e weighted-aver- age expected term for all employee groups is presented in the table above. Th e risk-free interest rate for peri- ods during the expected term of the options is based on the U.S. Treasury zero-coupon yield curve in eﬀ ect at the time of grant. Any corporate income tax beneﬁ t realized upon exer- cise or vesting of an award in excess of that previously recognized in earnings (referred to as a windfall tax beneﬁ t) is presented in our Consolidated Statements of Cash Flows as a ﬁ nancing cash ﬂ ow. 2016 Annual Report 69 Stock-based compensation expense related to stock option awards was $14.8 million in ﬁ scal 2016, $18.1 million in ﬁ scal 2015, and $18.2 million in ﬁ scal 2014. Compensation expense related to stock-based pay- ments recognized in our Consolidated Statements of Earnings includes amounts recognized in restructur- ing, impairment, and other exit costs for ﬁ scal 2016 and 2015. Net cash proceeds from the exercise of stock options less shares used for minimum withholding taxes and the intrinsic value of options exercised were as follows: In Millions 2016 2015 2014 Fiscal Year Net cash proceeds Intrinsic value of $171.9 $163.7 $108.1 options exercised $268.4 $201.9 $166.6 Restricted Stock, Restricted Stock Units, and Performance Share 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. Restricted stock and restricted stock units generally vest and become unre- stricted four years aft er the date of grant. Performance share units are earned based on our future achievement of three-year goals for average organic net sales growth and cumulative free cash ﬂ ow. Performance share units are settled in common stock and are generally subject to a three year performance and vesting period. Th e sale or transfer of these awards is restricted during the vesting period. Participants holding restricted stock, but not restricted stock units or performance share units, are entitled to vote on matters submitted to holders of common stock for a vote. Th ese awards accumulate dividends from the date of grant, but participants only receive payment if the awards vest. Realized windfall tax beneﬁ ts are credited to addi- tional paid-in capital within our Consolidated Balance Sheets. Realized shortfall tax beneﬁ ts (amounts which are less than that previously recognized in earnings) are ﬁ rst oﬀ set against the cumulative balance of wind- fall tax beneﬁ ts, if any, and then charged directly to income tax expense, potentially resulting in volatility in our consolidated eﬀ ective income tax rate. We calcu- lated a cumulative memo balance of windfall tax ben- eﬁ ts for the purpose of accounting for future shortfall tax beneﬁ ts. Options may be priced at 100 percent or more of the fair market value on the date of grant, and generally vest four years aft er the date of grant. Options gen- erally expire within 10 years and one month aft er the date of grant. Information on stock option activity follows: Weighted- Average Exercise Weighted- Average Exercise Exercisable Price Per Outstanding Price Per Share (Th ousands) (Th ousands) Options Options Share Balance as of May 26, 2013 29,290.3 $27.69 47,672.1 $30.22 Granted Exercised Forfeited or expired Balance as of 2,789.8 (6,181.3) (111.6) May 25, 2014 29,452.8 28.37 44,169.0 Granted Exercised Forfeited or expired Balance as of 2,253.1 (7,297.2) (47.7) May 31, 2015 26,991.5 30.44 39,077.2 Granted Exercised Forfeited or expired Balance as of 1,930.2 (8,471.0) (134.8) 48.33 24.78 38.74 32.10 53.70 26.68 43.73 34.35 55.72 28.49 48.16 May 29, 2016 22,385.1 $32.38 32,401.6 $37.09 70 General Mills Information on restricted stock unit and performance share units activity follows: Non-vested as of May 31, 2015 Granted Vested Forfeited, expired, or reclassiﬁ ed Non-vested as of May 29, 2016 Number of units granted (thousands) Weighted average price per unit Th e total grant-date fair value of restricted stock unit awards that vested during ﬁ scal 2016 was $101.8 million and $133.7 million vested during ﬁ scal 2015. As of May 29, 2016, unrecognized compensation expense related to non-vested stock options, restricted stock units, and performance share units was $93.9 million. Th is expense will be recognized over 18 months, on average. Stock-based compensation expense related to restricted stock units and performance share units was $76.8 million for ﬁ scal 2016, $96.6 million for ﬁ scal 2015, and $107.0 million for ﬁ scal 2014. Compensation expense related to stock-based payments recognized in our Consolidated Statements of Earnings includes amounts recognized in restructuring, impairment, and other exit costs for ﬁ scal 2016 and 2015. Equity Classiﬁ ed Liability Classiﬁ ed Share- Settled Units (Th ousands) Weighted- Average Grant-Date Fair Value 6,235.6 1,287.7 (2,119.9) (303.0) $46.44 56.01 46.65 49.45 Share- Settled Units (Th ousands) Weighted- Average Grant-Date Fair Value 237.0 $44.84 63.8 (69.5) (19.9) 55.82 40.55 51.45 5,100.4 $48.60 211.4 $48.37 2016 1,351.5 $56.00 Fiscal Year 2015 1,708.2 $53.45 2014 2,144.1 $48.49 NOTE 12. EARNINGS PER SHARE Basic and diluted EPS were calculated using the following: In Millions, Except per Share Data 2016 2015 2014 Net earnings attributable to General Mills $1,697.4 $1,221.3 $1,824.4 Fiscal Year Average number of common shares - basic EPS Incremental share eﬀ ect from: (a) Stock options Restricted stock units, performance share units, 598.9 603.3 628.6 9.8 11.3 12.3 and other 3.2 4.2 4.8 Average number of common shares - diluted EPS 611.9 618.8 645.7 Earnings per share - basic $ 2.83 $ 2.02 $ 2.90 Earnings per share - diluted $ 2.77 $ 1.97 $ 2.83 (a) Incremental shares from stock options, restricted stock units, and per- formance share units are computed by the treasury stock method. Stock options, restricted stock units, and performance share units excluded from our computation of diluted EPS because they were not dilutive were as follows: In Millions 2016 2015 2014 Fiscal Year Anti-dilutive stock options, restricted stock units, and performance share units 1.1 2.1 1.7 2016 Annual Report 71 NOTE 13. RETIREMENT BENEFITS AND POSTEMPLOYMENT BENEFITS Deﬁ ned Beneﬁ t Pension Plans We have deﬁ ned beneﬁ t pension plans covering many employees in the United States, Canada, France, and the United Kingdom. Beneﬁ ts for salaried employees are based on length of service and ﬁ nal average compensation. Beneﬁ ts 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 no voluntary contributions to our principal U.S. plans in ﬁ scal 2016, 2015 and 2014. We do not expect to be required to make any contributions in ﬁ scal 2017. Our principal domestic retirement plan covering sala- ried employees has a provision that any excess pen- sion assets would be allocated to active participants if the plan is terminated within ﬁ ve years of a change in control. All salaried employees hired on or aft er June 1, 2013 are eligible for a retirement program that does not include a deﬁ ned beneﬁ t pension plan. Other Postretirement Beneﬁ t Plans We also sponsor plans that provide health care beneﬁ ts to many of our retirees in the United States, Canada, and Brazil. Th e United States salaried health care beneﬁ t plan is con- tributory, 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 made $24.0 million in voluntary contributions to these plans in ﬁ scal 2016 and $24.0 million in voluntary con- tributions to these plans in ﬁ scal 2015. Health Care Cost Trend Rates Assumed health care cost trends are as follows: Fiscal Year 2016 2015 Health care cost trend rate for next year 7.3% and 7.5% 6.5% and 7.3% Rate to which the cost trend rate is assumed to decline (ultimate rate) Year that the rate reaches the 5.0% 5.0% ultimate trend rate 2024 2025 We review our health care cost trend rates annu- ally. Our review is based on data we collect about our health care claims experience and information pro- vided by our actuaries. Th is information includes recent 72 General Mills plan experience, plan design, overall industry experience and projections, and assumptions used by other simi- lar 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 7.5 percent for retirees age 65 and over and 7.3 percent for retirees under age 65 at the end of ﬁ scal 2016. Rates are graded down annually until the ultimate trend rate of 5.0 percent is reached in 2024 for all retirees. Th e trend rates are applicable for calculations only if the retirees’ beneﬁ ts increase as a result of health care inﬂ ation. Th e ultimate trend rate is adjusted annually, as necessary, to approximate the current economic view on the rate of long-term inﬂ ation plus an appropriate health care cost premium. Assumed trend rates for health care costs have an important eﬀ ect on the amounts reported for the other postretirement beneﬁ t plans. A one percentage point change in the health care cost trend rate would have the following eﬀ ects: In Millions One One Percentage Percentage Point Decrease Point Increase Eﬀ ect on the aggregate of the service and interest cost components in ﬁ scal 2017 $ 3.1 $ (2.7) Eﬀ ect on the other postretirement accumulated beneﬁ t obligation as of May 29, 2016 71.2 (63.8) Th e Patient Protection and Aﬀ ordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the Act) was signed into law in March 2010. Th e Act codiﬁ es health care reforms with staggered eﬀ ective dates from 2010 to 2018. Estimates of the future impacts of several of the Act’s provisions are incorporated into our postretirement beneﬁ t liability. Postemployment Beneﬁ t Plans Under certain circum- stances, we also provide accruable beneﬁ ts to former or inactive employees in the United States, Canada, and Mexico, and members of our Board of Directors, including severance and certain other beneﬁ ts pay- able upon death. We recognize an obligation for any of these beneﬁ ts that vest or accumulate with service. Postemployment beneﬁ ts 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 beneﬁ t plans are unfunded. We use our ﬁ scal year end as the measurement date for our deﬁ ned beneﬁ t pension and other postretirement beneﬁ t plans. Summarized ﬁ nancial information about deﬁ ned beneﬁ t pension, other postretirement beneﬁ t, and postemploy- ment beneﬁ t plans is presented below: In Millions Change in Plan Assets: Fair value at beginning of year Actual return on assets Employer contributions Plan participant contributions Beneﬁ ts payments Foreign currency Fair value at end of year Change in Projected Beneﬁ t Obligation: Beneﬁ t obligation at beginning of year Service cost Interest cost Plan amendment Curtailment/other Plan participant contributions Medicare Part D reimbursements Actuarial loss (gain) Beneﬁ ts payments Foreign currency Projected beneﬁ t obligation at end of year Plan assets less than beneﬁ t Deﬁ ned Beneﬁ t Pension Plans Fiscal Year Other Postretirement Beneﬁ t Plans Fiscal Year Postemployment Beneﬁ t Plans Fiscal Year 2016 2015 2016 2015 2016 2015 $5,758.5 $ 5,611.8 $ 582.8 $ 517.3 36.3 23.7 5.7 (277.5) 373.6 24.1 10.3 (244.9) (6.8) (16.4) (0.1) 24.1 14.1 (18.5) — 44.0 24.1 13.6 (16.2) — $5,539.9 $ 5,758.5 $ 602.4 $ 582.8 $6,252.1 $ 5,618.0 $ 1,079.6 $ 1,074.8 $ 146.6 $ 145.3 134.6 267.8 137.0 249.2 0.9 7.1 1.9 19.9 19.0 44.1 — 0.5 22.4 46.9 (42.4) 3.4 7.6 3.9 1.1 10.7 7.5 4.3 — 9.5 5.7 — 65.2 (278.0) (6.9) 10.3 — 479.7 (245.5) (18.4) $ 6,448.5 $ 6,252.1 14.1 3.5 (64.5) (66.4) (1.0) 13.6 3.2 23.5 (62.8) (3.0) $ 1,028.9 $ 1,079.6 — — 11.2 (16.9) (0.1) $ 164.1 — — (0.4) (19.1) (0.5) $ 146.6 obligation as of ﬁ scal year end $ (908.6) $ (493.6) $ (426.5) $ (496.8) $ (164.1) $ (146.6) Assumed mortality rates of plan participants are a critical estimate in measuring the expected payments a par- ticipant will receive over their lifetime and the amount of expense we recognize. On October 27, 2014, the Society of Actuaries published RP-2014 Mortality Tables and Mortality Improvement Scale MP-2014, which both reﬂ ect improved longevity. We adopted the change to the mortality assumptions to remeasure our deﬁ ned beneﬁ t pension plans and other postretirement beneﬁ t plans obligations which increased the total of these obligations by $436.7 million in ﬁ scal 2015. Th e accumulated beneﬁ t obligation for all deﬁ ned beneﬁ t pension plans was $5,950.7 million as of May 29, 2016, and $5,750.4 million as of May 31, 2015. Amounts recognized in AOCI as of May 29, 2016 and May 31, 2015, are as follows: Deﬁ ned Beneﬁ t Pension Plans Fiscal Year Other Postretirement Beneﬁ t Plans Fiscal Year Postemployment Beneﬁ t Plans Fiscal Year Total Fiscal Year In Millions 2016 2015 2016 2015 2016 2015 2016 2015 Net actuarial loss Prior service (costs) credits $(1,886.0) $(1,674.9) (13.8) (6.8) $(57.6) 19.9 $(72.2) 23.8 $ (14.6) (1.2) $ (9.0) (2.9) $(1,958.2) $(1,756.1) 7.1 11.9 Amounts recorded in accumulated other comprehensive loss $(1,892.8) $(1,688.7) $(37.7) $(48.4) $(15.8) $(11.9) $(1,946.3) $(1,749.0) 2016 Annual Report 73 Plans with accumulated beneﬁ t obligations in excess of plan assets are as follows: In Millions Projected beneﬁ t obligation Accumulated beneﬁ t obligation Plan assets at fair value Deﬁ ned Beneﬁ t Pension Plans Fiscal Year Other Postretirement Beneﬁ t Plans Fiscal Year Postemployment Beneﬁ t Plans Fiscal Year 2016 2015 2016 2015 2016 2015 $5,490.3 $512.3 $ — $ — $ 4.8 $ — 4,998.3 4,498.5 440.6 1,024.7 1,074.8 159.3 143.5 — 602.4 582.8 — — Components of net periodic beneﬁ t expense are as follows: In Millions Service cost Interest cost Deﬁ ned Beneﬁ t Pension Plans Fiscal Year Other Postretirement Beneﬁ t Plans Fiscal Year Postemployment Beneﬁ t Plans Fiscal Year 2016 2015 2014 2016 2015 2014 2016 2015 2014 $ 134.6 $ 137.0 $ 133.0 $ 19.0 $ 22.4 $ 22.7 $ 7.6 $ 7.5 $ 7.7 Expected return on plan assets (496.9) (476.4) (455.6) Amortization of losses 189.8 141.7 151.0 267.8 249.2 239.5 44.1 (46.2) 6.6 46.9 (40.2) 4.9 Amortization of prior service costs (credits) Other adjustments Settlement or curtailment 4.7 5.0 13.1 7.4 15.1 18.0 5.6 — — (5.4) 2.3 (1.0) (1.6) 3.3 1.3 50.5 (34.6) 15.4 (3.4) — (2.9) 3.9 — 0.7 2.5 10.7 — 4.3 — 0.7 2.4 9.5 — 4.1 — 0.6 2.4 3.7 — Net expense $ 118.1 $ 92.0 $ 73.5 $ 19.4 $ 37.0 $ 47.7 $ 25.4 $ 24.4 $ 18.5 We expect to recognize the following amounts in net periodic beneﬁ t expense in ﬁ scal 2017: In Millions Amortization of losses Amortization of prior service costs (credits) Deﬁ ned Beneﬁ t Pension Plans Other Postretirement Beneﬁ t Plans Postemployment Beneﬁ t Plans $190.3 2.5 $2.5 (5.4) $1.8 0.6 Assumptions Weighted-average assumptions used to determine ﬁ scal year-end beneﬁ t obligations are as follows: Deﬁ ned Beneﬁ t Pension Plans Other Postretirement Beneﬁ t Plans Postemployment Beneﬁ t Plans Fiscal Year Fiscal Year Fiscal Year 2016 2015 2016 2015 2016 2015 4.19% 4.38% 3.97% 4.20% 2.94% 3.55% 4.28 4.09 — — 4.35 4.36 Discount rate Rate of salary increases 74 General Mills Weighted-average assumptions used to determine ﬁ scal year net periodic beneﬁ t expense are as follows: Deﬁ ned Beneﬁ t Pension Plans Fiscal Year Other Postretirement Beneﬁ t Plans Fiscal Year Postemployment Beneﬁ t Plans Fiscal Year 2016 2015 2014 2016 2015 2014 2016 2015 2014 Discount rate 4.38% 4.54% 4.54% 4.20% 4.51% 4.52% 3.55% 3.82% 3.70% Rate of salary increases 4.31 4.44 4.44 — — — 4.36 4.44 4.44 Expected long-term rate of return on plan assets 8.53 8.53 8.53 8.14 8.13 8.11 — — — Discount Rates Our discount rate assumptions are determined annually as of the last day of our ﬁ scal year for our deﬁ ned beneﬁ t pension, other postretirement beneﬁ t, and postemployment beneﬁ t plan obligations. We also use the same discount rates to determine deﬁ ned beneﬁ t pension, other postretirement beneﬁ t, and postemployment beneﬁ t plan income and expense for the following ﬁ scal year. We work with our out- side actuaries to determine the timing and amount of expected future cash outﬂ ows to plan participants and, using the Aa Above Median corporate bond yield, to develop a forward interest rate curve, including a mar- gin to that index based on our credit risk. Th is forward interest rate curve is applied to our expected future cash outﬂ ows to determine our discount rate assumptions. Fair Value of Plan Assets Th e fair values of our pen- sion and postretirement beneﬁ t plans’ assets and their respective levels in the fair value hierarchy at May 29, 2016 and May 31, 2015, by asset category were as follows: 2016 Annual Report 75 In Millions Level 1 Level 2 Level 3 Total Assets Level 1 Level 2 Level 3 Total Assets May 29, 2016 May 31, 2015 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 $ 1,543.7 $ 943.7 $ 458.0 $ 2,945.4 $ 1,634.4 $ 1,010.3 $ 542.9 $ 3,187.6 903.8 745.8 — 1,649.6 486.3 1,158.5 — 1,644.8 193.6 160.8 395.0 749.4 124.3 116.7 498.1 739.1 — 195.1 — — 0.4 — 0.4 — 195.1 186.6 — — 0.4 — 0.4 186.6 of pension plan assets $ 2,836.2 $ 1,850.3 $ 853.4 $ 5,539.9 $ 2,431.6 $ 2,285.5 $ 1,041.4 $ 5,758.5 Fair value measurement of postretirement beneﬁ t plan assets: Equity (a) Fixed income (b) Real asset investments (c) Other investments (d) Cash and accruals Fair value measurement of postretirement beneﬁ t $ 128.9 $ 124.1 $ 23.4 $ 276.4 $ 134.0 $ 120.6 $ 23.7 $ 278.3 18.0 — — 8.9 83.4 30.6 171.3 — — 101.4 13.8 44.4 — — 171.3 8.9 14.0 0.2 — 5.4 73.7 25.7 168.9 — — 87.7 16.6 42.5 — — 168.9 5.4 plan assets $ 155.8 $ 409.4 $ 37.2 $ 602.4 $ 153.6 $ 388.9 $ 40.3 $ 582.8 (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 ﬁ nancing, and expected cash ﬂ ows. 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 and futures for purposes of total return, managing ﬁ xed income exposure to policy allocations, and managing duration targets. Investments include: ﬁ xed income securities and bond futures generally valued at closing prices from national exchanges, ﬁ xed income pricing models, and independent ﬁ nancial analysts; and ﬁ xed 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, ﬁ xed 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 beneﬁ ts. 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. 76 General Mills Th e following table is a roll forward of the Level 3 investments of our pension and postretirement beneﬁ t plans’ assets during the years ended May 29, 2016 and May 31, 2015: In Millions Pension beneﬁ t plan assets: Equity Real asset investments Other investments Balance as of May 31, 2015 Net Transfers Out Fiscal 2016 Net Purchases, Sales, Issuances, Net Gain Balance as of (Loss) May 29, 2016 and Settlements $ 542.9 $ — $ (92.6) $ 7.7 $ 458.0 498.1 0.4 — — (72.8) — (30.3) 395.0 — 0.4 Fair value activity of level 3 pension plan assets $ 1,041.4 $ — $ (165.4) $ (22.6) $ 853.4 Postretirement beneﬁ t plan assets: Equity Real asset investments Fair value activity of level 3 postretirement beneﬁ t plan assets In Millions Pension beneﬁ t plan assets: Equity Real asset investments Other investments $ 23.7 16.6 $ 40.3 $ — — $ — $ (1.2) $ 0.9 $ (1.8) (1.0) $ (3.0) $ (0.1) $ 23.4 13.8 37.2 Balance as of May 25, 2014 Net Transfers Out Fiscal 2015 Net Purchases, Sales, Issuances, Net Gain Balance as of (Loss) May 31, 2015 and Settlements $ 568.2 $ — $ (61.0) $ 35.7 $ 542.9 602.9 0.3 — — (18.2) 0.2 (86.6) 498.1 (0.1) 0.4 Fair value activity of level 3 pension plan assets $ 1,171.4 $ — $ (79.0) $ (51.0) $ 1,041.4 Postretirement beneﬁ t plan assets: Equity Real asset investments Fair value activity of level 3 postretirement beneﬁ t plan assets $ 21.1 17.9 $ 39.0 $ — — $ — $ 0.3 $ 2.3 $ 0.5 (1.8) $ 0.8 $ 0.5 $ 23.7 16.6 40.3 Th e net change in level 3 assets attributable to unre- alized losses at May 29, 2016, was $108.2 million for our pension plan assets and $3.2 million for our postre- tirement beneﬁ t 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 inﬂ ation assumptions. We review this assumption annually for each plan; however, our annual investment performance for one particular year does not, by itself, signiﬁ cantly inﬂ uence our evaluation. Weighted-average asset allocations for the past two ﬁ scal years for our deﬁ ned beneﬁ t pension and other postretirement beneﬁ t plans are as follows: Deﬁ ned Beneﬁ t Pension Plans Other Postretirement Beneﬁ t Plans Fiscal Year Fiscal Year 2016 2015 2016 2015 Asset category: United States equities 30.5% 28.9% 37.2% 38.7% International equities 19.0 Private equities Fixed income Real assets 8.3 28.6 13.6 18.4 9.5 30.3 12.9 23.4 3.9 29.4 6.1 24.1 4.1 26.3 6.8 Total 100.0% 100.0% 100.0% 100.0% Th e investment objective for our deﬁ ned beneﬁ t pen- sion and other postretirement beneﬁ t plans is to secure the beneﬁ t obligations to participants at a reasonable cost to us. Our goal is to optimize the long-term return 2016 Annual Report 77 on plan assets at a moderate level of risk. Th e deﬁ ned beneﬁ t pension plan and other postretirement bene- ﬁ t plan portfolios are broadly diversiﬁ ed across asset classes. Within asset classes, the portfolios are further diversiﬁ ed across investment styles and investment organizations. For the deﬁ ned beneﬁ t pension plans, the long-term investment policy allocation is: 25 per- cent to equities in the United States; 15 percent to international equities; 10 percent to private equities; 35 percent to ﬁ xed income; and 15 percent to real assets (real estate, energy, and timber). For other postretire- ment beneﬁ t 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 ﬁ xed income; and 10 percent to real assets (real estate, energy, and timber). Th e actual allocations to these asset classes may vary tactically around the long-term policy allocations based on relative market valuations. Contributions and Future Beneﬁ t Payments We do not expect to be required to make contributions to our deﬁ ned beneﬁ t pension, other postretirement beneﬁ t, and postemployment beneﬁ t plans in ﬁ scal 2017. Actual ﬁ scal 2017 contributions could exceed our current pro- jections, as inﬂ uenced by our decision to undertake discretionary funding of our beneﬁ t trusts and future changes in regulatory requirements. Estimated bene- ﬁ t payments, which reﬂ ect expected future service, as appropriate, are expected to be paid from ﬁ scal 2017 to 2026 as follows: In Millions 2017 2018 2019 2020 2021 Other Deﬁ ned Beneﬁ t Pension Subsidy Beneﬁ t Plans Plans Gross Payments Receipts Postretirement Medicare Postemployment Beneﬁ t Plans $ 277.7 $ 61.3 $ 4.8 $ 22.1 287.9 297.1 306.8 316.4 65.5 67.1 68.3 69.2 5.2 5.6 5.2 4.2 23.2 20.6 19.2 17.8 17.0 75.6 2022-2026 1,731.5 355.2 Deﬁ ned Contribution Plans Th e General Mills Savings Plan is a deﬁ ned contribution plan that covers domestic salaried, hourly, nonunion, and certain union employ- ees. Th is 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 78 General Mills (ESOP). We sponsor another money purchase plan for certain domestic hourly employees with net assets of $21.0 million as of May 29, 2016, and $21.9 million as of May 31, 2015. We also sponsor deﬁ ned contribution plans in many of our foreign locations. Our total recog- nized expense related to deﬁ ned contribution plans was $61.2 million in ﬁ scal 2016, $44.0 million in ﬁ scal 2015, and $44.8 million in ﬁ scal 2014. We match a percentage of employee contributions to the General Mills Savings Plan. Th e Company match is directed to investment options of the participant’s choosing. Th e number of shares of our common stock allocated to participants in the ESOP was 6.9 million as of May 29, 2016, and 7.5 million as of May 31, 2015. Th e ESOP’s only assets are our common stock and tempo- rary cash balances. Th e Company stock fund and the ESOP collectively held $711.5 million and $655.6 million of Company common stock as of May 29, 2016 and May 31, 2015, respectively. NOTE 14. INCOME TAXES Th e components of earnings before income taxes and aft er-tax earnings from joint ventures and the corre- sponding income taxes thereon are as follows: In Millions 2016 2015 2014 Fiscal Year Earnings before income taxes and aft er-tax earnings from joint ventures: United States Foreign $1,941.4 $1,338.6 $2,181.4 462.2 423.3 473.6 Total earnings before income taxes and aft er-tax earnings from joint ventures $ 2,403.6 $ 1,761.9 $ 2,655.0 Income taxes: Currently payable: Federal State and local Foreign Total current Deferred: Federal State and local Foreign Total deferred Total income taxes $ 489.8 $ 392.7 $ 526.7 30.8 114.0 634.6 123.0 (6.9) 4.5 120.6 29.3 139.5 561.5 70.3 (8.7) (36.3) 25.3 37.8 146.3 710.8 159.1 21.3 (7.9) 172.5 $ 755.2 $ 586.8 $ 883.3 Th e following table reconciles the United States statu- tory income tax rate with our eﬀ ective income tax rate: Fiscal Year 2016 2015 2014 United States statutory rate 35.0% 35.0% 35.0% State and local income taxes, net of federal tax beneﬁ ts Foreign rate diﬀ erences Repatriation of foreign earnings Non-deductible goodwill Domestic manufacturing deduction Other, net (a) Eﬀ ective income tax rate 0.7 (2.2) — 2.6 (2.0) (2.7) 0.7 (3.1) 4.5 — (2.9) (0.9) 1.4 (0.1) — — (2.3) (0.7) 31.4% 33.3% 33.3% (a) Fiscal 2016 includes a 0.6 percent tax beneﬁ t related to the divestiture of our business in Venezuela. See Note 3 for additional information. Th e tax eﬀ ects of temporary diﬀ erences that give rise to deferred tax assets and liabilities are as follows: In Millions May 29, 2016 May 31, 2015 Accrued liabilities $ 89.9 $ 98.0 Compensation and employee beneﬁ ts 491.5 536.2 Unrealized hedges Pension Tax credit carryforwards Stock, partnership, and — 0.8 322.0 169.0 4.5 5.6 miscellaneous investments 353.6 384.1 Capital losses Net operating losses Other Gross deferred tax assets Valuation allowance Net deferred tax assets Brands Fixed assets Intangible assets Tax lease transactions Inventories Stock, partnership, and 14.5 97.9 84.1 1,458.0 227.0 1,231.0 1,311.7 476.3 221.8 48.0 53.0 6.1 89.3 74.5 1,363.6 215.4 1,148.2 1,346.3 446.5 208.4 50.8 59.7 miscellaneous investments 476.0 472.5 Unrealized hedges Other 22.6 21.2 — 14.2 Gross deferred tax liabilities 2,630.6 2,598.4 Net deferred tax liability $ 1,399.6 $ 1,450.2 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 suﬃ cient 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 beneﬁ ts. Of the total valuation allowance of $227.0 million, the majority relates to a deferred tax asset for losses recorded as part of the Pillsbury acquisition in the amount of $167.9 million, $44.1 million relates to var- ious state and foreign loss carryforwards, and $13.0 million relates to various foreign capital loss carryfor- wards. As of May 29, 2016, we believe it is more-likely- than-not that the remainder of our deferred tax assets are realizable. We have $113.1 million of tax loss carryforwards. Of this amount, $100.5 million is foreign loss carryfor- wards. Th e carryforward periods are as follows: $72.6 million do not expire; $4.7 million expire in ﬁ scal 2017 and 2018; and $23.2 million expire in ﬁ scal 2019 and beyond. Th e remaining $12.6 million are state operating loss carryforwards, the majority of which expire aft er ﬁ scal 2024. We have not recognized a deferred tax liability for unremitted earnings of approximately $2.0 billion from our foreign operations because our subsidiaries have invested or will invest the undistributed earnings indef- initely, 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 indeﬁ nitely 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 ﬁ scal 2015, we approved a one-time repatriation of $606.1 million of historical foreign earn- ings to reduce the economic cost of funding restruc- turing initiatives and the acquisition of Annie’s. We recorded a discrete tax charge of $78.6 million in ﬁ scal 2015 related to this action. We have previously asserted that our historical foreign earnings are permanently reinvested and will only be repatriated in a tax-neu- tral manner, and this one-time repatriation does not change this on-going assertion. We are subject to federal income taxes in the United States as well as various state, local, and foreign juris- dictions. A number of years may elapse before an uncertain tax position is audited and ﬁ nally resolved. While it is oft en diﬃ cult to predict the ﬁ nal outcome or the timing of resolution of any particular uncertain tax position, we believe that our liabilities for income taxes reﬂ ect the most likely outcome. We adjust these 2016 Annual Report 79 liabilities, as well as the related interest, in light of chang- ing facts and circumstances. Settlement of any particu- lar position would usually require the use of cash. Th e 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. Th e Internal Revenue Service (IRS) is currently audit- ing our federal tax returns for ﬁ scal 2013 and 2014. Several state and foreign examinations are currently in progress. We do not expect these examinations to result in a material impact on our results of operations or ﬁ nancial position. During ﬁ scal 2014, the IRS concluded its ﬁ eld exam- ination of our federal tax returns for ﬁ scal 2011 and 2012. Th e audit closure and related adjustments did not have a material impact on our results of operations or ﬁ nancial position. As of May 29, 2016, we have eﬀ ec- tively settled all issues with the IRS for ﬁ scal years 2012 and prior. 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 beneﬁ t 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 aﬀ ect earnings in the period of such change. Th e following table sets forth changes in our total gross unrecognized tax benefit liabilities, exclud- ing accrued interest, for ﬁ scal 2016 and ﬁ scal 2015. Approximately $79 million of this total in ﬁ scal 2016 represents the amount that, if recognized, would aﬀ ect our eﬀ ective income tax rate in future periods. Th is amount diﬀ ers from the gross unrecognized tax beneﬁ ts presented in the table because certain of the liabilities below would impact deferred taxes if recog- nized. We also would record a decrease in U.S. federal income taxes upon recognition of the state tax beneﬁ ts included therein. In Millions Fiscal Year 2016 2015 Balance, beginning of year $161.1 $150.9 Tax positions related to current year: Additions 31.6 34.8 Tax positions related to prior years: Additions Reductions Settlements Lapses in statutes of limitations 23.9 (25.7) (4.0) (10.4) 17.4 (21.8) (12.0) (8.2) Balance, end of year $176.5 $161.1 As of May 29, 2016, we expect to pay approximately $14.7 million of unrecognized tax beneﬁ t liabilities and accrued interest within the next 12 months. We are not able to reasonably estimate the timing of future cash ﬂ ows beyond 12 months due to uncertainties in the timing of tax audit outcomes. Th e remaining amount of our unrecognized tax liability was classiﬁ ed in other liabilities. We report accrued interest and penalties related to unrecognized tax beneﬁ t liabilities in income tax expense. For ﬁ scal 2016, we recognized a net beneﬁ t of $2.7 million of tax-related net interest and penalties, and had $32.1 million of accrued interest and penalties as of May 29, 2016. For ﬁ scal 2015, we recognized a net beneﬁ t of $0.2 million of tax-related net interest and penalties, and had $35.2 million of accrued interest and penalties as of May 31, 2015. NOTE 15. LEASES, OTHER COMMITMENTS, AND CONTINGENCIES The Company’s leases are generally for warehouse space and equipment. Rent expense under all operating leases from continuing operations was $189.1 million, $193.5 million, and $189.0 million in ﬁ scal 2016, 2015, and 2014, respectively. 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 insigniﬁ cant. 80 General Mills Noncancelable future lease commitments are: In Millions 2017 2018 2019 2020 2021 Aft er 2021 Total noncancelable future lease commitments Less: interest Operating Leases Capital Leases $ 107.9 $ 0.9 83.5 67.2 49.6 39.6 49.8 0.7 0.6 0.3 0.1 0.1 $ 397.6 $ 2.7 (0.2) $ 2.5 Present value of obligations under capital leases Th ese future lease commitments will be partially oﬀ - set by estimated future sublease receipts of approxi- mately $1 million. Depreciation on capital leases is recorded as depreciation expense in our results of operations. As of May 29, 2016, we have issued guarantees and comfort letters of $383.2 million for the debt and other obligations of consolidated subsidiaries, and guarantees and comfort letters of $239.1 million for the debt and other obligations of non-consolidated aﬃ liates, mainly CPW. In addition, off-balance sheet arrangements are generally limited to the future payments under non-cancelable operating leases, which totaled $397.6 million as of May 29, 2016. NOTE 16. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION We operate in the consumer foods industry. We have three operating segments by type of customer and geographic region as follows: U.S. Retail, 60.4 percent of our ﬁ scal 2016 consolidated net sales; International, 28.0 percent of our ﬁ scal 2016 consolidated net sales; and Convenience Stores and Foodservice, 11.6 percent of our ﬁ scal 2016 consolidated net sales. In ﬁ scal 2015, we changed how we assess operating segment performance to exclude the asset and liability remeasurement impact from hyperinﬂ ationary econo- mies. Th is impact is now included in unallocated corpo- rate items. All periods presented have been changed to conform to this presentation. In ﬁ scal 2015, we realigned certain operating units within our U.S. Retail operating segment. We also changed the name of our Yoplait operating unit to Yogurt and our Big G operating unit to Cereal. Frozen Foods transitioned into Meals and Baking Products. Small Planet Foods transitioned into Snacks, Cereal, and Meals. Th e Yogurt operating unit was unchanged. We revised the amounts previously reported in the net sales and net sales percentage change by operating unit within our U.S. Retail segment to conform to the new operating unit structure. Th ese realignments had no eﬀ ect on previously reported consolidated net sales, operating segments’ net sales, operating proﬁ t, segment operating proﬁ t, net earnings attributable to General Mills, or EPS. In addition, results from the acquired Annie’s business are included in the Meals and Snacks operating units. Our chief operating decision maker continues to assess performance and make decisions about resources to be allocated to our segments at the U.S. Retail, International, and Convenience Stores and Foodservice operating segment level. Our U.S. Retail segment reﬂ ects business with a wide variety of grocery stores, mass merchandisers, mem- bership stores, natural food chains, drug, dollar and discount chains, and e-commerce grocery providers operating throughout the United States. Our product categories in this business segment are ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks, and a wide variety of organic products includ- ing meal kits, granola bars, and cereal. Our International segment consists of retail and foodservice businesses outside of the United States. Our product categories include ready-to-eat cereals, shelf stable and frozen vegetables, meal kits, refriger- ated and frozen dough products, dessert and baking mixes, frozen pizza snacks, refrigerated yogurt, grain and fruit snacks, and super-premium ice cream and fro- zen desserts. We also sell super-premium ice cream and frozen desserts directly to consumers through owned retail shops. 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 inter- national joint ventures. Revenues from export activities and franchise fees are reported in the region or country where the end customer is located. In our Convenience Stores and Foodservice segment our major product categories are ready-to-eat cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products, and baking mixes. 2016 Annual Report 81 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. Operating proﬁ t for these segments excludes unallo- cated corporate items, gain on divestitures, and restruc- turing, impairment, and other exit costs. Unallocated corporate items include corporate overhead expenses, variances to planned domestic employee beneﬁ ts and incentives, contributions to the General Mills Foundation, asset and liability remeasurement impact of hyperinﬂ a- tionary economies, restructuring initiative project-re- lated costs, and other items that are not part of our measurement of segment operating performance. Th ese include gains and losses arising from the revaluation of certain grain inventories and gains and losses from mark-to-market valuation of certain commodity posi- tions until passed back to our operating segments. Th ese items aﬀ ecting operating proﬁ t are centrally managed at the corporate level and are excluded from the measure of segment proﬁ tability reviewed by executive manage- ment. Under our supply chain organization, our man- ufacturing, warehouse, and distribution activities are substantially integrated across our operations in order to maximize eﬃ ciency and productivity. As a result, ﬁ xed assets and depreciation and amortization expenses are neither maintained nor available by operating segment. Our operating segment results were as follows: Net sales by class of similar products were as follows: In Millions Snacks Convenient meals Yogurt Cereal Dough Baking mixes and ingredients 1,704.3 Super-premium ice cream Vegetables Other Total Fiscal Year 2016 2015 2014 $ 3,297.2 $ 3,392.0 $ 3,232.5 2,779.0 2,760.9 2,731.5 1,820.0 731.2 532.3 206.7 2,810.3 2,938.3 2,771.3 1,877.0 1,867.7 769.5 937.3 266.9 2,844.2 2,964.7 2,860.1 1,890.2 1,996.4 756.6 1,014.7 350.2 $16,563.1 $17,630.3 $17,909.6 Th e following table provides ﬁ nancial information by geographic area: In Millions Net sales: Fiscal Year 2016 2015 2014 United States $11,930.9 $12,501.8 $12,523.0 Non-United States 4,632.2 5,128.5 5,386.6 Total $16,563.1 $17,630.3 $17,909.6 In Millions Cash and cash equivalents: United States Non-United States Total May 29, 2016 May 31, 2015 $ 118.5 $ 22.9 645.2 311.3 $ 763.7 $ 334.2 May 29, 2016 May 31, 2015 $ 2,755.1 $ 2,727.5 988.5 1,055.8 $ 3,743.6 $ 3,783.3 Fiscal Year In Millions In Millions Net sales: U.S. Retail 2016 2015 2014 $10,007.1 $10,507.0 $10,604.9 International 4,632.2 5,128.2 5,385.9 Convenience Stores and Foodservice 1,923.8 1,995.1 1,918.8 Land, buildings, and equipment: United States Non-United States Total Total Operating proﬁ t: U.S. Retail International Convenience Stores $16,563.1 $17,630.3 $17,909.6 NOTE 17. SUPPLEMENTAL INFORMATION $ 2,179.0 $ 2,159.3 $ 2,311.5 441.6 522.6 535.1 Th e components of certain Consolidated Balance Sheet accounts are as follows: and Foodservice 378.9 353.1 307.3 Total segment operating proﬁ t 2,999.5 3,035.0 3,153.9 Unallocated corporate items Divestitures (gain) Restructuring, impairment, 288.9 (148.2) 413.8 — 258.4 (65.5) In Millions Receivables: Customers May 29, 2016 May 31, 2015 $ 1,390.4 $ 1,412.0 Less allowance for doubtful accounts (29.6) (25.3) and other exit costs 151.4 543.9 3.6 Total $ 1,360.8 $ 1,386.7 Operating proﬁ t $ 2,707.4 $ 2,077.3 $ 2,957.4 82 General Mills In Millions Inventories: Raw materials and packaging $ 397.3 $ 390.8 Finished goods 1,163.1 1,268.6 consumer promotions May 29, 2016 May 31, 2015 In Millions May 29, 2016 May 31, 2015 Grain Excess of FIFO over LIFO cost (a) Total 72.6 95.7 (219.3) (214.2) $ 1,413.7 $ 1,540.9 (a) Inventories of $841.0 million as of May 29, 2016, and $867.5 million as of May 31, 2015, were valued at LIFO. During ﬁ scal 2015, LIFO inventory layers were reduced. Results of operations were not materially aﬀ ected by these liquidations of LIFO inventory. Th e diﬀ erence between replace- ment cost and the stated LIFO inventory value is not materially diﬀ er- ent from the reserve for the LIFO valuation method. In Millions May 29, 2016 May 31, 2015 Other receivables Prepaid expenses Derivative receivables, primarily commodity-related Grain contracts Miscellaneous Total In Millions Land, buildings, and equipment: Land Buildings $ 159.3 $ 148.8 177.9 169.3 44.6 1.8 15.4 80.9 3.3 21.5 $ 399.0 $ 423.8 May 29, 2016 May 31, 2015 $ 92.9 $ 96.0 2,236.0 2,272.7 Other current liabilities: Accrued trade and Accrued payroll Dividends payable Accrued taxes Accrued interest, including interest rate swaps Grain contracts Restructuring and other exit costs reserve Derivative payable Miscellaneous Total $ 563.7 386.4 23.8 110.5 $ 564.7 361.8 27.9 20.7 90.4 5.5 76.6 35.6 302.5 $1,595.0 91.8 7.8 120.8 122.9 271.5 $1,589.9 Other noncurrent liabilities: Accrued compensation and beneﬁ ts, including obligations for underfunded other postretirement beneﬁ t and postemployment beneﬁ t plans Accrued taxes Miscellaneous Total $1,755.0 204.0 128.6 $2,087.6 $1,451.4 202.5 90.9 $1,744.8 Certain Consolidated Statements of Earnings amounts are as follows: Prepaid expenses and other current assets: In Millions May 29, 2016 May 31, 2015 Buildings under capital lease 0.3 0.3 In Millions Equipment Equipment under capital lease Capitalized soft ware Construction in progress 5,945.6 6,091.1 3.0 523.0 702.7 9.8 499.0 622.2 Total land, buildings, and equipment 9,503.5 9,591.1 Depreciation and amortization Research and development expense Advertising and media expense (including production and Fiscal Year 2016 2015 2014 $608.1 $588.3 $585.4 222.1 229.4 243.6 Less accumulated depreciation (5,759.9) (5,807.8) communication costs) 754.4 823.1 869.5 Total $ 3,743.6 $ 3,783.3 In Millions Other assets: Investments in and advances to joint ventures Pension assets Exchangeable note with related party Life insurance Miscellaneous Total May 29, 2016 May 31, 2015 $ 518.9 $ 530.6 90.9 12.7 26.3 102.9 138.2 30.7 26.6 85.1 Th e components of interest, net are as follows: Fiscal Year Expense (Income), in Millions 2016 2015 2014 Interest expense Capitalized interest Interest income Interest, net $319.6 (7.7) (8.1) $303.8 $335.5 (6.9) (13.2) $315.4 $323.4 (4.9) (16.1) $302.4 Certain Consolidated Statements of Cash Flows $ 751.7 $ 811.2 amounts are as follows: In Millions 2016 2015 2014 Cash interest payments Cash paid for income taxes $292.0 533.8 $305.3 562.6 $288.3 757.2 Fiscal Year 2016 Annual Report 83 NOTE 18. QUARTERLY DATA (UNAUDITED) Summarized quarterly data for ﬁ scal 2016 and ﬁ scal 2015 follows: In Millions, Except Per Share Amounts 2016 2015 2016 2015 2016 2015 2016 2015 First Quarter Fiscal Year Second Quarter Fiscal Year Th ird Quarter Fiscal Year Fourth Quarter Fiscal Year Net sales Gross margin Net earnings attributable to General Mills EPS: Basic Diluted $4,207.9 $4,268.4 $4,424.9 $4,712.2 $4,002.4 $4,350.9 $3,927.9 $4,298.8 1,554.6 1,438.7 1,540.6 1,619.1 1,357.5 1,375.9 1,376.8 1,515.5 426.6 345.2 529.5 346.1 361.7 343.2 379.6 186.8 $ 0.71 $ 0.56 $ 0.88 $ 0.58 $ 0.61 $ 0.57 $ 0.63 $ 0.31 $ 0.69 $ 0.55 $ 0.87 $ 0.56 $ 0.59 $ 0.56 $ 0.62 $ 0.30 Dividends per share $ 0.44 $ 0.41 $ 0.44 $ 0.41 $ 0.44 $ 0.41 $ 0.46 $ 0.44 Market price of common stock: High Low $ 59.55 $ 55.56 $ 59.23 $ 53.82 $ 60.14 $ 55.11 $ 65.36 $ 57.14 $ 54.36 $ 50.15 $ 55.41 $ 48.86 $ 54.12 $ 51.13 $ 58.85 $ 51.70 During the fourth quarter of ﬁ scal 2016, we sold our General Mills de Venezuela CA subsidiary to a third party and exited our business in Venezuela. As a result of this transaction, we recorded a pre-tax loss of $37.6 million. In addition, we sold our General Mills Argentina S.A. foodservice business in Argentina to a third party and recorded a pre-tax loss of $14.8 million. Th e eﬀ ective tax rate for the fourth quarter of ﬁ scal 2016 was 19.2 percent, primarily driven by tax credits and the impact of the divestiture of our business in Venezuela. During the fourth quarter of ﬁ scal 2015, we made a strategic decision to redirect certain resources supporting our Green Giant business in our U.S. Retail segment to other businesses within the segment. Th erefore, we recorded a $260 million impairment charge in the fourth quarter of ﬁ scal 2015 related to the Green Giant brand intangible asset. See Note 6 for additional information. During the fourth quarter of ﬁ scal 2015, we approved a one-time repatriation of $606.1 million of foreign earnings and recorded a discrete income tax charge of $78.6 million. 84 General Mills Glossary Accelerated depreciation associated with restructured assets. Th e increase in depreciation expense caused by updating the salvage value and shortening the useful life of depreciable ﬁ xed assets to coincide with the end of production under an approved restructuring plan, but only if impairment is not present. AOCI. Accumulated other comprehensive income (loss). Adjusted average total capital. Notes payable, long- term debt including current portion, redeemable inter- est, noncontrolling interests, and stockholders’ equity excluding AOCI, and certain aft er-tax earnings adjust- ments are used to calculate adjusted return on average total capital. Th e average is calculated using the aver- age of the beginning of ﬁ scal year and end of ﬁ scal year Consolidated Balance Sheet amounts for these line items. Adjusted operating proﬁ t margin. Operating proﬁ t adjusted for certain items aﬀ ecting year-over-year com- parability, divided by net sales. Adjusted return on average total capital. Net earn- ings including earnings attributable to redeemable and noncontrolling interests, excluding aft er-tax net inter- est, and adjusted for certain items aﬀ ecting year-over- year comparability, divided by adjusted average total capital. Average total capital. Notes payable, long-term debt including current portion, redeemable interest, noncon- trolling interests, and stockholders’ equity are used to calculate return on average total capital. Th e average is calculated using the average of the beginning of ﬁ scal year and end of ﬁ scal year Consolidated Balance Sheet amounts for these line items. Constant currency. Financial results translated to U.S. dollars using constant foreign currency exchange rates based on the rates in eﬀ ect for the comparable prior-year period. To present this information, current period results for entities reporting in currencies other than United States dollars are translated into United States dollars at the average exchange rates in eﬀ ect during the corresponding period of the prior ﬁ scal year, rather than the actual average exchange rates in eﬀ ect during the current ﬁ scal year. Th erefore, the foreign currency impact is equal to current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current ﬁ scal period and the corresponding period of the prior ﬁ scal year. Core working capital. Accounts receivable plus inventories less accounts payable, all as of the last day of our ﬁ scal year. Derivatives. Financial instruments such as futures, swaps, options, and forward contracts that we use to manage our risk arising from changes in commodity prices, interest rates, foreign exchange rates, and equity prices. Euribor. European Interbank Oﬀ ered Rate. 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 gen- erally requires signiﬁ cant management judgment. Th e three levels are deﬁ ned as follows: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabili- ties in inactive markets. Level 3: Unobservable inputs reﬂ ecting management’s assumptions about the inputs used in pricing the asset or liability. Fixed charge coverage ratio. Th e sum of earnings before income taxes and ﬁ xed charges (before tax), divided by the sum of the ﬁ xed charges (before tax) and interest. Free cash ﬂ ow. Net cash provided by operating activ- ities less purchases of land, buildings, and equipment. Free cash flow conversion rate. Free cash flow divided by our net earnings, including earnings attrib- utable to redeemable and noncontrolling interests adjusted for certain items affecting year-over-year comparability. 2016 Annual Report 85 Generally accepted accounting principles (GAAP). Guidelines, procedures, and practices that we are required to use in recording and reporting accounting information in our ﬁ nancial statements. Goodwill. Th e diﬀ erence 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 oﬀ set 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 eﬀ ective, and only prospectively from the date a hedging relationship is formally documented. LIBOR. London Interbank Oﬀ ered Rate. Mark-to-market. Th e act of determining a value for ﬁ nancial instruments, commodity contracts, and related assets or liabilities based on the current market price for that item. Net mark-to-market valuation of certain commod- ity positions. Realized and unrealized gains and losses on derivative contracts that will be allocated to seg- ment operating proﬁ t when the exposure we are hedg- ing aﬀ ects earnings. Net price realization. Th e impact of list and pro- moted price changes, net of trade and other price pro- motion costs. Noncontrolling interests. Interests of subsidiaries held by third parties. Notional principal amount. Th e principal amount on which ﬁ xed-rate or ﬂ oating-rate interest payments are calculated. OCI. Other comprehensive income (loss). Operating cash ﬂ ow conversion rate. Net cash pro- vided by operating activities, divided by net earnings, including earnings attributable to redeemable and non- controlling interests. Operating cash ﬂ ow to debt ratio. Net cash provided by operating activities, divided by the sum of notes pay- able and long-term debt, including the current portion. Organic net sales growth. Net sales growth adjusted for foreign currency translation, as well as acquisitions, divestitures, and a 53rd week impact, when applicable. Project-related costs. Costs incurred related to our restructuring initiatives not included in restructuring charges. Redeemable interest. Interest of subsidiaries held by a third party that can be redeemed outside of our control and therefore cannot be classiﬁ ed as a noncon- trolling interest in equity. Reporting unit. An operating segment or a business one level below an operating segment. Return on average total capital. Net earnings includ- ing earnings attributable to redeemable and noncon- trolling interests, excluding after-tax net interest, divided by average total capital. Segment operating proﬁ t margin. Segment operat- ing proﬁ t divided by net sales for the segment. SKU. Shop keeping unit. 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. Translation adjustments. Th e impact of the con- version of our foreign aﬃ liates’ ﬁ nancial statements to U.S. dollars for the purpose of consolidating our ﬁ nan- cial 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 proﬁ ts and losses or (2) has equity investors that do not provide suﬃ cient ﬁ nancial resources to support the entity’s activities. Working capital. Current assets and current liabili- ties, all as of the last day of our ﬁ scal year. 86 General Mills Total Return to Stockholders Th ese line graphs compare the cumulative total return for holders of our common stock with the cumula- tive total return of the Standard & Poor’s 500 Stock Index and Standard & Poor’s 500 Packaged Foods Index for the last ﬁ ve-year and ten-year ﬁ scal periods. Th e graphs assume the investment of $100 in each of General Mills’ common stock and the speciﬁ ed indexes at the beginning of the applicable period, and assume the reinvestment of all dividends. On June 13, 2016, there were approximately 32,000 record holders of our common stock. Total Return to Stockholders 5 Years x e d n I n r u t e R l a t o T x e d n I n r u t e R l a t o T 240 220 200 180 160 140 120 100 80 60 40 20 0 May 11 May 12 May 13 May 14 May 15 May 16 Total Return to Stockholders 10 Years 340 320 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13 May 14 May 15 May 16 General Mills (GIS) S&P 500 S&P Packaged Foods 2016 Annual Report 87 Board of Directors (cid:2)As of August 1, 2016 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) David M. Cordani 1,2 President and Chief Executive Officer, Cigna Corporation (health insurance and services) Paul Danos 3,5,† Dean Emeritus, Tuck School of Business and Laurence(cid:455)F. Whittemore Professor of Business Administration, Dartmouth College Roger W. Ferguson Jr. 3,4 President and Chief Executive Officer, TIAA (financial services) Henrietta H. Fore 4,5* Chairman and Chief Executive Officer, Holsman International (manufacturing, consulting and investment services) Maria G. Henry 1,2 Senior Vice President and Chief Financial Officer, Kimberly-Clark Corporation (consumer products) Heidi G. Miller 1*,3 Retired President, J.P. Morgan International, J.P. Morgan Chase & Co. (banking and financial services) Steve Odland 2,4* President and Chief Executive Officer, Committee for Economic Development (public policy) and Former Chairman and Chief Executive Officer, Office Depot, Inc. (office products retailer) Kendall J. Powell Chairman and Chief Executive Officer, General Mills, Inc. 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) Senior Management (cid:2)As of August 1, 2016 Richard C. Allendorf Senior Vice President; General Counsel and Secretary Ricardo Fernandez Vice President; President, Latin America Gary Chu Senior Vice President; President, Greater China John R. Church Executive Vice President, Supply Chain David V. Clark Vice President; President, Yogurt USA Mary J. Ekman Senior Vice President, U.S. Retail Finance Peter C. Erickson Executive Vice President, Innovation, Technology and Quality Olivier Faujour Vice President; President, International Yogurt and Ice Cream Strategic Business Unit John M. Foraker Vice President; President, Annie’s Foods Jeffrey L. Harmening President; Chief Operating Officer David P. Homer Senior Vice President; Chief Executive Officer, Cereal Partners Worldwide Christina Law Vice President; President, Asia, Middle East and Africa Michele S. Meyer Senior Vice President; President, Meals Donal L. Mulligan Executive Vice President; Chief Financial Officer James H. Murphy Senior Vice President; President, Big G Cereals 88 General Mills Kimberly A. Nelson Senior Vice President, External Relations; President, General Mills Foundation Elizabeth M. Nordlie Vice President; President, Baking Jonathon J. Nudi Senior Vice President; President, Europe, Australia and New Zealand Shawn P. O’Grady Senior Vice President; President, Sales and Channel Development Christopher D. O’Leary Executive Vice President; Chief Operating Officer, International Kendall J. Powell Chairman and Chief Executive Officer Bethany C. Quam Vice President; President, Convenience Stores and Foodservice Eric D. Sprunk 1,5 Chief Operating Officer, NIKE, Inc. (athletic footwear and apparel) Dorothy A. Terrell 4,5 Managing Partner, FirstCap Advisors (venture capital) Jorge A. Uribe 2,5 Retired Global Productivity and Organization Transformation Officer, Procter & Gamble Company (consumer products) Board Committees 1 Audit 2 Compensation 3 Finance 4 Corporate Governance 5 Public Responsibility * Denotes Committee Chair ** Independent Lead Director † Retiring from the board September 2016 Ann W. H. Simonds Senior Vice President; Chief Marketing Officer Anton V. Vincent Vice President; President, Snacks Sean N. Walker* Senior Vice President Jacqueline R. Williams-Roll Senior Vice President; Chief Human Resources Officer Keith A. Woodward Senior Vice President; Treasurer Jerald A. Young Vice President; Controller *on leave of absence Shareholder Information 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 Phone: (800) 245-5703 or (763) 764-3202 Analysts/Investors: Jeff Siemon Director, Investor Relations Phone: (763) 764-2301 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 shareowneronline.com 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 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 8:30 AM, Central Daylight Time, Tuesday, Sept. 27, 2016, at the Radisson Blu Hotel in downtown Minneapolis at 35 South Seventh Street, Minneapolis, MN 55402. 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 reinvestments. For more information and a copy of a plan prospectus, go to the Investors section of GeneralMills.com. Global Responsibility Report For 150 years, General Mills has been serving the world by making food people love. Our goal is to continue doing so by treating the world, its resources and people with(cid:455)care. We are committed to providing convenient, nutritious food for consumers globally. We promote environmentally and socially responsible practices to protect the resources upon which our business depends. And we work to strengthen communities through philanthropy and volunteerism and by increasing food security worldwide. For a comprehensive review of our commitment to stand among the most socially responsible food companies in the world, see our Global Responsibility Report available 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: 2016 General Mills Holiday Gift Box Department 11045 P.O. Box 5016 Stacy, MN 55078-5016 Or you can place an order online at: GMIHolidayGiftBox.com Please contact us after October 15, 2016. i s e n a p m o C S L G y b g n i t n i r P i m o c . n o s d d a . w w w i n o s d d A y b n g s e D i This report is printed on recycled paper. © 2016 General Mills Number One General Mills Boulevard Minneapolis, MN 55426-1347 GeneralMills.com

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