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General Mills 10-Q 2013

Documents found in this filing:

  1. 10-Q
  2. Ex-12.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2
Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED August 25, 2013

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM             TO            

Commission file number: 001-01185

 

 

GENERAL MILLS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   41-0274440

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Number One General Mills Boulevard

Minneapolis, Minnesota

  55426
(Address of principal executive offices)   (Zip Code)

(763) 764-7600

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     x    Accelerated filer      ¨
Non-accelerated     ¨   (Do not check if a smaller reporting company)    Smaller reporting company     ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Number of shares of Common Stock outstanding as of September 7, 2013: 634,262,701 (excluding 120,350,627 shares held in the treasury).


Table of Contents

General Mills, Inc.

Table of Contents

 

              Page    

PART I – Financial Information

  
Item 1.     

Financial Statements

  
    

Consolidated Statements of Earnings for the quarters ended August 25, 2013, and August 26, 2012

     3   
    

Consolidated Statements of Comprehensive Income for the quarters ended August  25, 2013, and August 26, 2012

     4   
    

Consolidated Balance Sheets as of August 25, 2013, and May 26, 2013

     5   
    

Consolidated Statements of Total Equity and Redeemable Interest for the quarter ended August  25, 2013, and the fiscal year ended May 26, 2013

     6   
    

Consolidated Statements of Cash Flows for the quarters ended August 25, 2013, and August 26, 2012

     7   
Item 2.     

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     26   
Item 3.     

Quantitative and Qualitative Disclosures About Market Risk

     36   
Item 4.     

Controls and Procedures

     36   

PART II – Other Information

  
Item 2.     

Unregistered Sales of Equity Securities and Use of Proceeds

     36   
Item 6.     

Exhibits

     37   

Signatures

     38   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

Consolidated Statements of Earnings

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions, Except per Share Data)

 

     Quarter Ended  
     Aug. 25,
2013
     Aug. 26,
2012
 

Net sales

   $     4,372.7      $     4,051.0  

Cost of sales

     2,759.7        2,422.7  

Selling, general, and administrative expenses

     875.4        839.0  

Restructuring, impairment, and other exit costs

     2.8        9.2  
  

 

 

    

 

 

 

Operating profit

     734.8        780.1  

Interest, net

     78.8        83.0  
  

 

 

    

 

 

 

Earnings before income taxes and after-tax earnings from joint ventures

     656.0        697.1  

Income taxes

     212.0        158.1  

After-tax earnings from joint ventures

     24.1        23.1  
  

 

 

    

 

 

 

Net earnings, including earnings attributable to redeemable and noncontrolling interests

     468.1        562.1  

Net earnings attributable to redeemable and noncontrolling interests

     8.8        13.2  
  

 

 

    

 

 

 

Net earnings attributable to General Mills

   $ 459.3      $ 548.9  
  

 

 

    

 

 

 

Earnings per share - basic

   $ 0.71      $ 0.84  
  

 

 

    

 

 

 

Earnings per share - diluted

   $ 0.70      $ 0.82  
  

 

 

    

 

 

 

Dividends per share

   $ 0.38      $ 0.33  
  

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

Consolidated Statements of Comprehensive Income

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions)

 

     Quarter Ended  
     Aug. 25,
2013
    Aug. 26,
2012
 

Net earnings, including earnings attributable to redeemable and noncontrolling interests

   $     468.1     $     562.1  

Other comprehensive income (loss), net of tax:

    

Foreign currency translation

     (86.6     65.4  

Other fair value changes:

    

Securities

     0.2       0.2  

Hedge derivatives

     12.1       (7.5

Reclassification to earnings:

    

Hedge derivatives

     (2.0     3.8  

Amortization of losses and prior service costs

     26.4       24.7  
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (49.9     86.6  
  

 

 

   

 

 

 

Total comprehensive income

     418.2       648.7  

Comprehensive income attributable to redeemable and noncontrolling interests

     44.0       18.6  
  

 

 

   

 

 

 

Comprehensive income attributable to General Mills

   $ 374.2     $ 630.1  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

 

4


Table of Contents

Consolidated Balance Sheets

GENERAL MILLS, INC. AND SUBSIDIARIES

(In Millions, Except Par Value)

 

     Aug. 25,
2013
    May 26,
2013
 
     (Unaudited)        

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 758.9     $ 741.4  

Receivables

     1,637.5       1,446.4  

Inventories

     1,773.6       1,545.5  

Deferred income taxes

     114.3       128.0  

Prepaid expenses and other current assets

     408.9       437.6  
  

 

 

   

 

 

 

Total current assets

     4,693.2       4,298.9  

Land, buildings, and equipment

     3,789.4       3,878.1  

Goodwill

     8,615.2       8,622.2  

Other intangible assets

     5,003.9       5,015.1  

Other assets

     842.9       843.7  
  

 

 

   

 

 

 

Total assets

   $ 22,944.6     $ 22,658.0  
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current liabilities:

    

Accounts payable

   $ 1,425.5     $ 1,423.2  

Current portion of long-term debt

     748.0       1,443.3  

Notes payable

     1,583.1       599.7  

Other current liabilities

     1,706.3       1,827.7  
  

 

 

   

 

 

 

Total current liabilities

     5,462.9       5,293.9  

Long-term debt

     5,913.5       5,926.1  

Deferred income taxes

     1,409.6       1,389.1  

Other liabilities

     1,868.9       1,952.9  
  

 

 

   

 

 

 

Total liabilities

     14,654.9       14,562.0  
  

 

 

   

 

 

 

Redeemable interest

     995.9       967.5  

Stockholders’ equity:

    

Common stock, 754.6 shares issued, $0.10 par value

     75.5       75.5  

Additional paid-in capital

     1,189.6       1,166.6  

Retained earnings

     11,157.9       10,702.6  

Common stock in treasury, at cost, shares of 117.6 and 113.8

     (3,928.3     (3,687.2

Accumulated other comprehensive loss

     (1,670.4     (1,585.3
  

 

 

   

 

 

 

Total stockholders’ equity

     6,824.3       6,672.2  

Noncontrolling interests

     469.5       456.3  
  

 

 

   

 

 

 

Total equity

     7,293.8       7,128.5  
  

 

 

   

 

 

 

Total liabilities and equity

   $   22,944.6     $   22,658.0  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

Consolidated Statements of Total Equity and Redeemable Interest

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions, Except per Share Data)

 

 

 

 

           
    $.10 Par Value Common Stock                                
    (One Billion Shares Authorized)                                
    Issued     Treasury                                
    Shares     Par
Amount
    Additional
Paid-In
Capital
    Shares     Amount     Retained
Earnings
   

Accumulated

Other
Comprehensive
Income (Loss)

   

Non-

controlling
Interests

   

Total

Equity

   

Redeemable

Interest

 
                                                                                 

Balance as of May 27, 2012

    754.6     $ 75.5     $ 1,308.4       (106.1   $ (3,177.0   $ 9,958.5     $ (1,743.7   $ 461.0     $ 6,882.7     $ 847.8  

Total comprehensive income

              1,855.2       158.4       18.3       2,031.9       42.8  

Cash dividends declared ($1.70 per share)

              (1,111.1         (1,111.1  

Shares purchased

        (30.0     (24.2     (1,014.9           (1,044.9  

Stock compensation plans (includes income tax benefits of $63.1)

        (38.6     16.5       504.7             466.1    

Unearned compensation related to restricted stock unit awards

        (80.5               (80.5  

Earned compensation

        100.4                 100.4    

Increase (decrease) in fair value of redeemable interest

        (93.1               (93.1     93.1  

Distributions to noncontrolling interest holders

                  (23.0     (23.0     (16.2
                                                                                 

Balance as of May 26, 2013

    754.6       75.5       1,166.6       (113.8     (3,687.2     10,702.6       (1,585.3     456.3       7,128.5       967.5  

Total comprehensive income

              459.3       (85.1     14.1       388.3       29.9  

Cash dividends declared ($0.38 per share)

              (4.0         (4.0  

Shares purchased

        30.0       (6.5     (328.2           (298.2  

Stock compensation plans (includes income tax benefits of $31.6)

        31.3       2.7       87.1             118.4    

Unearned compensation related to restricted stock unit awards

        (81.1               (81.1  

Earned compensation

        41.3                 41.3    

Increase (decrease) in fair value of redeemable interest

        1.5                 1.5       (1.5

Distributions to noncontrolling and redeemable interest holders

                                                            (0.9     (0.9        

Balance as of Aug. 25, 2013

    754.6     $ 75.5     $ 1,189.6       (117.6   $ (3,928.3   $ 11,157.9     $ (1,670.4   $ 469.5     $ 7,293.8     $ 995.9  
                                                                                 
                                                                                 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Consolidated Statements of Cash Flows

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions)

 

     Quarter Ended  
     Aug. 25,
2013
    Aug. 26,
2012
 

Cash Flows - Operating Activities

    

Net earnings, including earnings attributable to redeemable and noncontrolling interests

   $     468.1     $     562.1  

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Depreciation and amortization

     151.0       139.2  

After-tax earnings from joint ventures

     (24.1     (23.1

Distributions of earnings from joint ventures

     15.0       37.0  

Stock-based compensation

     41.3       38.3  

Deferred income taxes

     22.9       (51.2

Tax benefit on exercised options

     (31.6     (18.1

Pension and other postretirement benefit plan contributions

     (12.1     (5.5

Pension and other postretirement benefit plan costs

     30.8       32.6  

Restructuring, impairment, and other exit costs

     (5.6     (8.6

Changes in current assets and liabilities, excluding the effects of acquisitions

     (207.9     (130.5

Other, net

     (66.7     (83.4
  

 

 

   

 

 

 

Net cash provided by operating activities

     381.1       488.8  
  

 

 

   

 

 

 

Cash Flows - Investing Activities

    

Purchases of land, buildings, and equipment

     (123.8     (140.6

Acquisitions, net of cash acquired

           (31.8

Investments in affiliates, net

     11.0       7.5  

Proceeds from disposal of land, buildings, and equipment

     3.0       0.3  

Exchangeable note

           14.5  

Other, net

     (3.4     (3.5
  

 

 

   

 

 

 

Net cash used by investing activities

     (113.2     (153.6
  

 

 

   

 

 

 

Cash Flows - Financing Activities

    

Change in notes payable

     985.9       1,155.9  

Payment of long-term debt

     (719.9     (0.4

Proceeds from common stock issued on exercised options

     11.7       39.0  

Tax benefit on exercised options

     31.6       18.1  

Purchases of common stock for treasury

     (298.2     (272.5

Dividends paid

     (247.5     (217.8

Distributions to noncontrolling and redeemable interest holders

     (0.9     (29.5
  

 

 

   

 

 

 

Net cash (used) provided by financing activities

     (237.3     692.8  
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (13.1     9.2  
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     17.5       1,037.2  

Cash and cash equivalents - beginning of year

     741.4       471.2  
  

 

 

   

 

 

 

Cash and cash equivalents - end of period

   $ 758.9     $ 1,508.4  
  

 

 

   

 

 

 

Cash Flow from Changes in Current Assets and Liabilities, excluding the effects of acquisitions:

    

Receivables

   $ (198.5   $ (143.8

Inventories

     (241.6     (324.0

Prepaid expenses and other current assets

     27.6       (5.4

Accounts payable

     47.1       176.9  

Other current liabilities

     157.5       165.8  
  

 

 

   

 

 

 

Changes in current assets and liabilities

   $ (207.9   $ (130.5
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

 

7


Table of Contents

GENERAL MILLS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Background

The accompanying Consolidated Financial Statements of General Mills, Inc. (we, us, our, General Mills, or the Company) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature, including the elimination of all intercompany transactions and any noncontrolling and redeemable interests’ share of those transactions. Operating results for the quarter ended August 25, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending May 25, 2014.

These statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended May 26, 2013. The accounting policies used in preparing these Consolidated Financial Statements are the same as those described in Note 2 to the Consolidated Financial Statements in that Form 10-K.

(2) Acquisitions

There were no acquisitions in the first quarter of fiscal 2014.

On August 1, 2012, we acquired Yoki Alimentos S.A. (Yoki), a privately held food company headquartered in Sao Bernardo do Campo, Brazil, for an aggregate purchase price of $939.8 million, including $88.8 million of non-cash consideration for net debt assumed. Yoki operates in several food categories, including snacks, convenient meals, basic foods, and seasonings. We report our Brazilian operations on a one-month lag and consolidated Yoki’s balance sheet and results of operations beginning with our second quarter of fiscal 2013. We recorded goodwill of $363.0 million. Indefinite lived intangible assets acquired include brands of $253.0 million. Finite lived intangible assets acquired primarily include customer relationships of $17.5 million. As of the date of the acquisition, the pro forma effects of this acquisition were not material.

(3) Restructuring, Impairment, and Other Exit Costs

Restructuring, impairment, and other exit costs were as follows:

 

     Quarter Ended  
In Millions   

Aug. 25,

2013

    

Aug. 26,

2012

 

Charges associated with restructuring actions previously announced

   $ 2.8      $ 9.2  

Total

   $ 2.8      $ 9.2  
                   

During the first quarter of fiscal 2014, we did not undertake any new restructuring actions. We recorded restructuring charges of $2.8 million in our International segment related to a productivity and cost savings plan approved in the fourth quarter of fiscal 2012. These restructuring actions are expected to be completed by the end of fiscal 2014 and we expect to record approximately $6 million related to these actions in fiscal 2014. In the first quarter of fiscal 2014, we paid $8.4 million in cash related to previously announced restructuring actions.

During the first quarter of fiscal 2013, we recorded a $9.0 million restructuring charge related to the productivity and cost savings plan, consisting of $7.2 million related to our International segment, $1.5 million related to our U.S. Retail segment, and $0.3 million related to our Convenience Stores and Foodservice segment.

 

8


Table of Contents

The roll forward of our restructuring and other exit cost reserves, included in other current liabilities, is as follows:

 

In Millions    Severance     Total  

Reserve balance as of May 26, 2013

   $ 19.5     $ 19.5  

Fiscal 2014 charges, including foreign currency translation

     3.0       3.0  

Utilized in fiscal 2014

     (8.4     (8.4

Reserve balance as of Aug. 25, 2013

   $ 14.1     $ 14.1  
                  

The charges recognized in the roll forward of our reserves for restructuring and other exit costs do not include items charged directly to expense (e.g., asset impairment charges, the gain or loss on the sale of restructured assets, and the write-off of spare parts) and other periodic exit costs recognized as incurred, as those items are not reflected in our restructuring and other exit cost reserves on our Consolidated Balance Sheets.

(4) Goodwill and Other Intangible Assets

The components of goodwill and other intangible assets are as follows:

 

In Millions    Aug. 25,
2013
    May 26,
2013
 

Goodwill

   $ 8,615.2     $ 8,622.2  

Other intangible assets:

    

Intangible assets not subject to amortization:

    

Brands and other indefinite-lived intangibles

     4,480.5       4,499.5  

Intangible assets subject to amortization:

    

Franchise agreements, customer relationships, and other finite-lived intangibles

     619.0       602.6  

Less accumulated amortization

     (95.6     (87.0
   

Intangible assets subject to amortization, net

     523.4       515.6  
   

Other intangible assets

     5,003.9       5,015.1  
   

Total

   $ 13,619.1     $ 13,637.3  
   
   

Based on the carrying value of finite-lived intangible assets as of August 25, 2013, annual amortization expense for each of the next five fiscal years is estimated to be approximately $30 million.

The changes in the carrying amount of goodwill during fiscal 2014 were as follows:

 

In Millions    U.S. Retail      International    

Convenience Stores

and

Foodservice (a)

     Joint
Ventures
     Total  

Balance as of May 26, 2013

   $ 5,841.4      $ 1,387.0     $ 921.1      $ 472.7      $ 8,622.2  

Other activity, primarily foreign currency translation

            (23.4            16.4        (7.0

Balance as of Aug. 25, 2013

   $ 5,841.4      $ 1,363.6     $ 921.1      $ 489.1      $ 8,615.2  
                                             

 

(a) See Note 15.

 

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Table of Contents

The changes in the carrying amount of other intangible assets during fiscal 2014 were as follows:

 

In Millions    U.S. Retail     International     Joint
Ventures
     Total  

Balance as of May 26, 2013

   $ 3,312.4     $ 1,638.2     $ 64.5      $ 5,015.1  

Other activity, primarily foreign currency translation

     (1.2     (10.2     0.2        (11.2

Balance as of Aug. 25, 2013

   $ 3,311.2     $ 1,628.0     $ 64.7      $ 5,003.9  
                                   

(5) Inventories

The components of inventories were as follows:

 

In Millions    Aug. 25,
2013
    May 26,
2013
 

Raw materials and packaging

   $ 438.2     $ 403.0  

Finished goods

     1,431.4       1,228.7  

Grain

     131.7       135.6  

Excess of FIFO over LIFO cost

     (227.7     (221.8

Total

   $   1,773.6     $   1,545.5  
                  

(6) Financial Instruments, Risk Management Activities, and Fair Values

Financial Instruments. The carrying values of cash and cash equivalents, receivables, accounts payable, other current liabilities, and notes payable approximate fair value. Marketable securities are carried at fair value. As of August 25, 2013, and May 26, 2013, a comparison of cost and market values of our marketable debt and equity securities is as follows:

 

     Cost      Market Value      Gross Gains      Gross Losses  
In Millions    Aug. 25,
2013
     May 26,
2013
     Aug. 25,
2013
     May 26,
2013
     Aug. 25,
2013
     May 26,
2013
     Aug. 25,
2013
     May 26,
2013
 

Available-for-sale:

                       

Debt securities

   $ 123.0      $ 134.0      $ 123.1      $ 134.1      $ 0.1      $ 0.1      $ —        $ —    

Equity securities

     1.8        1.8        6.8        6.4        5.0        4.6        —          —    

Total

   $ 124.8      $ 135.8      $ 129.9      $ 140.5      $ 5.1      $ 4.7      $ —        $ —    
                                                                         

For the first quarter of fiscal 2014, there were no gains or losses from sales of available-for-sale marketable securities. Gains and losses are determined by specific identification. Classification of marketable securities as current or noncurrent is dependent upon our intended holding period, the security’s maturity date, or both. The aggregate unrealized gains and losses on available-for-sale securities, net of tax effects, are classified in accumulated other comprehensive loss (AOCI) within stockholders’ equity. Scheduled maturities of our marketable securities are as follows:

 

     Available-for-Sale  
In Millions    Cost     

Market

Value

 

Under 1 year (current)

   $ 119.5      $ 119.6  

From 1 to 3 years

     2.2        2.2  

From 4 to 7 years

     1.3        1.3  

Equity securities

     1.8        6.8  

Total

   $   124.8      $ 129.9  
                   

 

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Marketable securities with a market value of $2.3 million as of August 25, 2013, were pledged as collateral for certain derivative contracts.

The fair values and carrying amounts of long-term debt, including the current portion, were $7,039.1 million and $6,661.5 million, respectively, as of August 25, 2013. The fair value of long-term debt was estimated using market quotations and discounted cash flows based on our current incremental borrowing rates for similar types of 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 various derivative transactions (e.g., futures, options, and swaps) pursuant to our established policies.

Commodity Price Risk. Many commodities we use in the production and distribution of our products are exposed to market price risks. We utilize derivatives to manage price risk for our principal ingredients and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), non-fat dry milk, natural gas, and diesel fuel. Our primary objective when entering into these derivative contracts is to achieve certainty with regard to the future price of commodities purchased for use in our supply chain. We manage our exposures through a combination of purchase orders, long-term contracts with suppliers, exchange-traded futures and options, and over-the-counter options and swaps. We offset our exposures based on current and projected market conditions and generally seek to acquire the inputs at as close to our planned cost as possible.

We use derivatives to manage our exposure to changes in commodity prices. We do not perform the assessments required to achieve hedge accounting for commodity derivative positions. Accordingly, the changes in the values of these derivatives are recorded currently in cost of sales in our Consolidated Statements of Earnings.

Although we do not meet the criteria for cash flow hedge accounting, we nonetheless believe that these instruments are effective in achieving our objective of providing certainty in the future price of commodities purchased for use in our supply chain. Accordingly, for purposes of measuring segment operating performance these gains and losses are reported in unallocated corporate items outside of segment operating results until such time that the exposure we are managing affects earnings. At that time we reclassify the gain or loss from unallocated corporate items to segment operating profit, allowing our operating segments to realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in unallocated corporate items.

Unallocated corporate items for the quarter ended August 25, 2013, and August 26, 2012, included:

 

     Quarter Ended  
In Millions    Aug. 25,
2013
    Aug. 26,
2012
 

Net gain (loss) on mark-to-market valuation of commodity positions

   $ (12.3   $ 58.9  

Net loss on commodity positions reclassified from unallocated corporate items to segment operating profit

     15.8       14.8  

Net mark-to-market revaluation of certain grain inventories

     (4.3     7.9  

Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items

   $ (0.8   $ 81.6  
                  

As of August 25, 2013, the net notional value of commodity derivatives was $291.0 million, of which $198.0 million related to energy inputs and $93.0 million related to agricultural inputs. These contracts relate to inputs that generally will be utilized within the next 12 months.

Interest Rate Risk. We are exposed to interest rate volatility with regard to future issuances of fixed-rate debt, and existing and future issuances of floating-rate debt. Primary exposures include U.S. Treasury rates, LIBOR, Euribor, and commercial paper rates in the United States and Europe. We use interest rate swaps, forward-starting interest rate swaps, and treasury locks to hedge our exposure to interest rate changes, to reduce the volatility of our financing

 

11


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costs, and to achieve a desired proportion of fixed versus floating-rate debt, based on current and projected market conditions. Generally under these swaps, we agree with a counterparty to exchange the difference between fixed-rate and floating-rate interest amounts based on an agreed upon notional principal amount.

Floating Interest Rate Exposures — Floating-to-fixed interest rate swaps are accounted for as cash flow hedges, as are all hedges of forecasted issuances of debt. Effectiveness is assessed based on either the perfectly effective hypothetical derivative method or changes in the present value of interest payments on the underlying debt. Effective gains and losses deferred to AOCI are reclassified into earnings over the life of the associated debt. Ineffective gains and losses are recorded as net interest. The amount of hedge ineffectiveness was less than $1 million for the period ended August 25, 2013.

Fixed Interest Rate Exposures — Fixed-to-floating interest rate swaps are accounted for as fair value hedges with effectiveness assessed based on changes in the fair value of the underlying debt and derivatives, using incremental borrowing rates currently available on loans with similar terms and maturities. Ineffective gains and losses on these derivatives and the underlying hedged items are recorded as net interest. The amount of hedge ineffectiveness was a $1.2 million loss for the period ended August 25, 2013.

During the fourth quarter of fiscal 2013, in advance of a planned debt refinancing, we entered into $250.0 million of treasury locks with an average fixed rate of 1.95 percent.

During the third quarter of fiscal 2013, we entered into swaps to convert $250.0 million of 0.875 percent fixed-rate notes due January 29, 2016, to floating rates.

During the second quarter of fiscal 2013, in advance of a planned debt refinancing, we entered into $200.0 million of treasury locks with an average fixed rate of 2.82 percent. All of these treasury locks were cash settled for $11.8 million during the third quarter of fiscal 2013, coincident with the issuance of our $500.0 million 30-year fixed-rate notes. As of August 25, 2013, an $11.6 million pre-tax gain remained in AOCI, which will be reclassified to earnings over the term of the underlying debt.

During the fourth quarter of fiscal 2011, first quarter of fiscal 2012, and second quarter of fiscal 2012, we entered into $500.0 million, $300.0 million, and $200.0 million of forward starting swaps with average fixed rates of 3.9 percent, 2.7 percent, and 2.4 percent, respectively, in advance of a planned debt financing. All of these forward starting swaps were cash settled for $100.4 million coincident with the issuance of our $1.0 billion 10-year fixed rate notes in November 2011. As of August 25, 2013, an $82.3 million pre-tax loss remained in AOCI, which will be reclassified to earnings over the term of the underlying debt.

As of August 25, 2013, a $15.0 million pre-tax loss on cash settled interest rate derivatives for our $500.0 million 30-year fixed rate notes issued June 1, 2010 remained in AOCI, which will be reclassified to earnings over the term of the underlying debt.

As of August 25, 2013, a $7.7 million pre-tax loss on cash settled interest rate swaps for our $1.0 billion 10-year fixed rate notes issued January 24, 2007 remained in AOCI, which will be reclassified to earnings over the term of the underlying debt.

The following table summarizes the notional amounts and weighted-average interest rates of our interest rate swaps. Average floating rates are based on rates as of the end of the reporting period.

 

In Millions    Aug. 25,
2013
    May 26,
2013
 

Pay-floating swaps - notional amount

   $ 550.0     $ 550.0  

Average receive rate

     1.1     1.1

Average pay rate

     0.4 %      0.4

Treasury locks - notional amount

   $ 250.0     $ 250.0  
                  

 

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The swap contracts mature at various dates from fiscal 2014 to 2016 as follows:

 

In Millions    Pay Floating  

2014

   $ 300.0  

2015

      

2016

     250.0  

Total

   $ 550.0  
          

The following tables reconcile the net fair values of assets and liabilities subject to offsetting arrangements that are recorded in the Consolidated Balance Sheets to the net fair values that could be reported in the Consolidated Balance Sheets:

 

       Aug. 25, 2013     Aug. 25, 2013  
       Assets     Liabilities  
                         Gross Amounts Not
Offset in the

Balance Sheet (e)
                            Gross Amounts Not
Offset in the

Balance Sheet (e)
       
In Millions      Gross
Amounts of
Recognized
Assets
    Gross Liabilities
Offset in the
Balance Sheet
(a)
    Net
Amounts
of Assets
(b)
    Financial
Instruments
    Cash
Collateral
Received
    Net
Amount
(c)
    Gross
Amounts of
Recognized
Liabilities
    Gross Assets
Offset in the
Balance Sheet
(a)
    Net
Amounts of
Liabilities
(b)
    Financial
Instruments
    Cash
Collateral
Received
    Net
Amount
(d)
 

Commodity contracts

     $ 42.4      $      $ 42.4      $ (22.2   $      $ 20.2      $ (24.2   $      $ (24.2   $ 22.2      $      $ (2.0

Interest rate contracts

       23.7             23.7       (0.5           23.2       (0.8           (0.8     0.5             (0.3

Foreign exchange contracts

       17.3             17.3       (5.8           11.5       (6.6           (6.6     5.8             (0.8

Total

     $ 83.4      $      $ 83.4      $ (28.5   $      $ 54.9      $ (31.6   $      $ (31.6   $ 28.5      $      $ (3.1
                                                                                                    

 

(a) Includes related collateral offset in the Consolidated Balance Sheets.

 

(b) Net fair value as recorded in the Consolidated Balance Sheets.

 

(c) Fair value of assets that could be reported net in the Consolidated Balance Sheets.

 

(d) Fair value of liabilities that could be reported net in the Consolidated Balance Sheets.

 

(e) Fair value of assets and liabilities reported on a gross basis in the Consolidated Balance Sheets.

 

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Table of Contents
       May 26, 2013     May 26, 2013  
      

Assets

    Liabilities  
                         Gross Amounts Not
Offset in the

Balance Sheet (e)
                            Gross Amounts Not
Offset in the

Balance Sheet (e)
       
In Millions      Gross
Amounts of
Recognized
Assets
    Gross Liabilities
Offset in the
Balance Sheet
(a)
    Net
Amounts
of Assets
(b)
    Financial
Instruments
    Cash
Collateral
Received
    Net
Amount
(c)
    Gross
Amounts of
Recognized
Liabilities
    Gross Assets
Offset in the
Balance Sheet
(a)
    Net
Amounts of
Liabilities
(b)
    Financial
Instruments
    Cash
Collateral
Received
    Net
Amount
(d)
 

Commodity contracts

     $ 33.0      $ (19.6   $ 13.4      $      $      $ 13.4      $ (23.5   $ 19.6      $ (3.9   $      $      $ (3.9

Interest rate contracts

       10.3             10.3                   10.3                                      

Foreign exchange contracts

       22.5             22.5       (1.7           20.8       (1.7           (1.7     1.7              

Total

     $ 65.8      $ (19.6   $ 46.2      $ (1.7   $      $ 44.5      $ (25.2   $ 19.6      $ (5.6   $ 1.7      $      $ (3.9
                                                                                                    

 

(a) Includes related collateral offset in the Consolidated Balance Sheets.

 

(b) Net fair value as recorded in the Consolidated Balance Sheets.

 

(c) Fair value of assets that could be reported net in the Consolidated Balance Sheets.

 

(d) Fair value of liabilities that could be reported net in the Consolidated Balance Sheets.

 

(e) Fair value of assets and liabilities reported on a gross basis in the Consolidated Balance Sheets.

Foreign Exchange Risk. Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign currency cash flows related to third party purchases, intercompany loans, product shipments, and foreign-denominated commercial paper. We are also exposed to the translation of foreign currency earnings to the U.S. dollar. Our principal exposures are to the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, Swiss franc, and Mexican peso. We mainly use foreign currency forward contracts to selectively hedge our foreign currency cash flow exposures. We also generally swap our foreign-denominated commercial paper borrowings and nonfunctional currency intercompany loans back to U.S. dollars or the functional currency of the entity with foreign exchange exposure; the gains or losses on these derivatives offset the foreign currency revaluation gains or losses recorded in earnings on the associated borrowings. We generally do not hedge more than 18 months forward.

As of August 25, 2013, the net notional value of foreign exchange derivatives was $1.0 billion. The amount of hedge ineffectiveness was less than $1 million as of August 25, 2013.

We also have many net investments in foreign subsidiaries that are denominated in euros. We previously hedged a portion of these net investments by issuing euro-denominated commercial paper and foreign exchange forward contracts. As of August 25, 2013, we had deferred net foreign currency transaction losses of $95.7 million in AOCI associated with hedging activity.

Equity Instruments. Equity price movements affect our compensation expense as certain investments made by our employees in our deferred compensation plan are revalued. We use equity swaps to manage this risk. As of August 25, 2013, the net notional value of our equity swaps was $61.8 million. These swap contracts mature in fiscal 2014.

 

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Table of Contents

Fair Value Measurements and Financial Statement Presentation

The fair values of our assets, liabilities, and derivative positions recorded at fair value and their respective levels in the fair value hierarchy as of August 25, 2013 and May 26, 2013, were as follows:

 

     Aug. 25, 2013      Aug. 25, 2013  
     Fair Values of Assets      Fair Values of Liabilities  
In Millions    Level 1      Level 2      Level 3      Total      Level 1      Level 2     Level 3      Total  

Derivatives designated as hedging instruments:

                      

Interest rate contracts (a) (b)

   $      $ 23.7      $      $ 23.7      $      $ (0.8   $      $ (0.8

Foreign exchange contracts (c) (d)

            15.8               15.8               (3.6            (3.6

Total

            39.5               39.5               (4.4            (4.4

Derivatives not designated as hedging instruments:

                      

Foreign exchange contracts (c) (d)

            1.5               1.5               (2.9            (2.9

Equity contracts (a) (e)

                                        (0.2            (0.2

Commodity contracts (c) (e)

     13.6        28.8               42.4               (24.2            (24.2

Grain contracts (c) (e)

            11.4               11.4               (29.2            (29.2

Total

     13.6        41.7               55.3               (56.5            (56.5

Other assets and liabilities reported at fair value:

                      

Marketable investments (a) (f)

     6.8        123.1               129.9                                  —   

Total

     6.8        123.1               129.9                             

Total assets, liabilities, and derivative positions recorded at fair value

   $ 20.4      $ 204.3      $      $ 224.7      $      $ (60.9   $      $ (60.9
                                                                        

 

(a) These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or other liabilities, as appropriate, based on whether in a gain or loss position. Certain marketable investments are recorded as cash and cash equivalents.

 

(b) Based on LIBOR and swap rates.

 

(c) These contracts are recorded as prepaid expenses and other current assets or as other current liabilities, as appropriate, based on whether in a gain or loss position.

 

(d) Based on observable market transactions of spot currency rates and forward currency prices.

 

(e) Based on prices of futures exchanges and recently reported transactions in the marketplace.

 

(f) Based on prices of common stock and bond matrix pricing.

 

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Table of Contents
     May 26, 2013      May 26, 2013  
     Fair Values of Assets      Fair Values of Liabilities  
In Millions    Level 1      Level 2      Level 3      Total      Level 1      Level 2     Level 3      Total  

Derivatives designated as hedging instruments:

                      

Interest rate contracts (a) (b)

   $      $ 10.3      $      $ 10.3      $      $     $      $  

Foreign exchange contracts (c) (d)

            15.7               15.7               (1.6            (1.6

Total

            26.0               26.0               (1.6            (1.6

Derivatives not designated as hedging instruments:

                      

Foreign exchange contracts (c) (d)

            6.7               6.7               (0.1            (0.1

Equity contracts (a) (e)

                                        (0.2            (0.2

Commodity contracts (c) (e)

     10.3        3.1               13.4               (3.9            (3.9

Grain contracts (c) (e)

            7.5               7.5               (30.4            (30.4

Total

     10.3        17.3               27.6               (34.6            (34.6

Other assets and liabilities reported at fair value:

                      

Marketable investments (a) (f)

     6.4        134.1               140.5                                  —   

Total

     6.4        134.1               140.5                             

Total assets, liabilities, and derivative positions recorded at fair value

   $ 16.7      $ 177.4      $      $ 194.1      $      $ (36.2   $      $ (36.2
                                                                        
                                                                        

 

(a) These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or other liabilities, as appropriate, based on whether in a gain or loss position. Certain marketable investments are recorded as cash and cash equivalents.

 

(b) Based on LIBOR and swap rates.

 

(c) These contracts are recorded as prepaid expenses and other current assets or as other current liabilities, as appropriate, based on whether in a gain or loss position.

 

(d) Based on observable market transactions of spot currency rates and forward currency prices.

 

(e) Based on prices of futures exchanges and recently reported transactions in the marketplace.

 

(f) Based on prices of common stock and bond matrix pricing.

We did not significantly change our valuation techniques from prior periods.

 

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Table of Contents

Information related to our cash flow hedges, fair value hedges, and other derivatives not designated as hedging instruments for the quarters ended August 25, 2013 and August 26, 2012, were as follows:

 

    Interest Rate
Contracts
    Foreign  Exchange
Contracts
    Equity Contracts     Commodity
Contracts
    Total  
    Quarter Ended     Quarter Ended     Quarter Ended     Quarter Ended     Quarter Ended  
In Millions   Aug. 25,
2013
    Aug. 26,
2012
    Aug. 25,
2013
    Aug. 26,
2012
    Aug. 25,
2013
    Aug. 26,
2012
    Aug. 25,
2013
    Aug. 26,
2012
    Aug. 25,
2013
    Aug. 26,
2012
 

Derivatives in Cash Flow Hedging Relationships:

                   

Amount of gain (loss) recognized in other comprehensive income (OCI) (a)

  $ 14.4     $     $ 3.7     $ (9.1   $     $     $     $     $ 18.1     $ (9.1

Amount of gain (loss) reclassified from AOCI into
earnings (a) (b)

    (3.0     (3.1     5.1       (2.2                             2.1       (5.3

Amount of loss recognized in earnings (c)

                (0.2                                   (0.2      

Derivatives in Fair Value Hedging Relationships:

                   

Amount of net loss recognized in earnings (d)

    (1.2     (1.5                                         (1.2     (1.5

Derivatives Not Designated as Hedging Instruments:

                   

Amount of gain (loss) recognized in earnings (d)

                (5.1     2.1       0.5       3.3       (12.3     58.9       (16.9     64.3  
                                                                                 

 

(a) Effective portion.

 

(b) Loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.

 

(c) Loss recognized in earnings is related to the ineffective portion of the hedging relationship, including SG&A expenses for foreign exchange contracts and interest, net for interest rate contracts. No amounts were reported as a result of being excluded from the assessment of hedge effectiveness.

 

(d) Gain (loss) recognized in earnings is reported in interest, net for interest rate contracts, in cost of sales for commodity contracts, and in SG&A expenses for equity contracts and foreign exchange contracts.

Amounts Recorded in Accumulated Other Comprehensive Loss. Unrealized losses from interest rate cash flow hedges recorded in AOCI as of August 25, 2013, totaled $42.5 million after tax. These deferred losses are primarily related to interest rate swaps we entered into in contemplation of future borrowings and other financing requirements and are being reclassified into net interest over the lives of the hedged forecasted transactions. Unrealized gains from foreign currency cash flow hedges recorded in AOCI as of August 25, 2013, were $10.8 million after-tax. The net amount of pre-tax gains and losses in AOCI as of August 25, 2013, that we expect to be reclassified into net earnings within the next 12 months is $3.1 million of income.

Credit-Risk-Related Contingent Features. Certain of our derivative instruments contain provisions that require us to maintain an investment grade credit rating on our debt from each of the major credit rating agencies. If our debt were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on August 25, 2013, was $0.6 million. We would be required to post this amount of collateral to the counterparties if the contingent features were triggered.

Credit Risk. We enter into interest rate, foreign exchange, and certain commodity and equity derivatives, primarily with a diversified group of highly rated counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and, by policy, limit the amount of credit exposure to any one party. These transactions may expose us to potential losses due to the risk of nonperformance by these counterparties; however, we have not incurred a material loss. We also enter into commodity futures transactions through various regulated exchanges.

 

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The amount of loss due to the credit risk of the counterparties, should the counterparties fail to perform according to the terms of the contracts, is $38.3 million against which we do not hold any collateral. Under the terms of master swap agreements, some of our transactions require collateral or other security to support financial instruments subject to threshold levels of exposure and counterparty credit risk. Collateral assets are either cash or U.S. Treasury instruments and are held in a trust account that we may access if the counterparty defaults.

We offer certain suppliers access to a third party service that allows them to view our scheduled payments online. The third party service also allows suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party. We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third party, or any financial institutions concerning this service. All of our accounts payable remain as obligations to our suppliers as stated in our supplier agreements. As of August 25, 2013, $202.9 million of our total accounts payable is payable to suppliers who utilize this third party service.

(7) Debt

The components of notes payable were as follows:

 

In Millions   

Aug. 25,

2013

    

May 26,

2013

 

U.S. commercial paper

   $ 1,444.9      $ 515.5  

Financial institutions

     138.2        84.2  

Total

   $     1,583.1      $     599.7  
                   

To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding short-term borrowings. Commercial paper is a continuing source of short-term financing. We have commercial paper programs available to us in the United States and Europe. We have $2.7 billion of fee-paid committed credit lines, consisting of a $1.0 billion facility scheduled to expire in April 2015 and a $1.7 billion facility scheduled to expire in April 2017. We also have $336.9 million in uncommitted credit lines that support our foreign operations. As of August 25, 2013, there were no amounts outstanding on the fee-paid committed credit lines and $138.2 million was drawn on the uncommitted lines.

In August 2013, we repaid $700.0 million of 5.25 percent notes.

In January 2013, we issued $750.0 million aggregate principal amount of fixed rate notes. The issuance consisted of $250.0 million 0.875 percent notes due January 29, 2016 and $500.0 million 4.15 percent notes due February 15, 2043. Interest on the fixed-rate notes is payable semi-annually in arrears. The fixed rate notes due January 29, 2016 may be redeemed in whole, or in part, at our option at any time for a specified make whole amount. The fixed rate notes due February 15, 2043 may be redeemed in whole, or in part, at our option at any time prior to August 15, 2042 for a specified make whole amount and any time on or after that date at par. These notes are senior unsecured obligations that include a change of control repurchase provision. The net proceeds were used to reduce our commercial paper borrowings.

In January 2013, we issued $250.0 million floating rate notes due January 29, 2016. The floating-rate notes bear interest equal to three-month LIBOR plus 30 basis points, subject to quarterly reset. Interest on the floating-rate notes is payable quarterly in arrears. The floating rate notes are not redeemable prior to maturity. These notes are senior unsecured obligations that include a change of control repurchase provision. The net proceeds were used to reduce our commercial paper borrowings.

In September 2012, we repaid $520.8 million of 5.65 percent notes.

Certain of our long-term debt agreements contain restrictive covenants. As of August 25, 2013, we were in compliance with all of these covenants.

 

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(8) Redeemable and Noncontrolling Interests

We have a 51 percent controlling interest in Yoplait S.A.S. and a 50 percent interest in Yoplait Marques S.A.S. Sodiaal International (Sodiaal) holds the remaining interests in each of the entities. On the acquisition date in fiscal 2012, we recorded the $904.4 million fair value of Sodiaal’s 49 percent euro-denominated interest in Yoplait S.A.S. as a redeemable interest on our Consolidated Balance Sheets. Sodiaal has the ability to put a limited portion of its redeemable interest to us once per year at fair value up to a maximum of 9 years. We adjust the value of the redeemable interest through additional paid-in capital on our Consolidated Balance Sheets quarterly to the redeemable interest’s redemption value, which approximates its fair value. Yoplait S.A.S. pays dividends annually if it meets certain financial metrics set forth in its shareholders agreement. As of August 25, 2013, the redemption value of the euro-denominated redeemable interest was $995.9 million.

In addition, a subsidiary of Yoplait S.A.S. has entered into an exclusive milk supply agreement for its European operations with Sodiaal at market-determined prices through July 1, 2021. Net purchases totaled $77.3 million for the quarter ended August 25, 2013, and $61.3 million for the quarter ended August 26, 2012.

On the acquisition date, we recorded the $263.8 million fair value of Sodiaal’s 50 percent euro-denominated interest in Yoplait Marques S.A.S. as a noncontrolling interest on our Consolidated Balance Sheets. Yoplait Marques S.A.S. earns a royalty stream through a licensing agreement with Yoplait S.A.S. for the rights to Yoplait and related trademarks. Yoplait Marques S.A.S. pays dividends annually based on its available cash as of its fiscal year end.

During the first quarter of fiscal 2013, in conjunction with the consent of the Class A investor, we restructured General Mills Cereals, LLC (GMC) through the distribution of its manufacturing assets, stock, inventory, cash and certain intellectual property to a wholly owned subsidiary. GMC retained the remaining intellectual property. Immediately following the restructuring, the Class A Interests of GMC were sold by the then current holder to another unrelated third-party investor.

The holder of the GMC Class A Interests receives quarterly preferred distributions from available net income based on the application of a floating preferred return rate, currently equal to the sum of three-month LIBOR plus 110 basis points, to the holder’s capital account balance established in the most recent mark-to-market valuation (currently $251.5 million). The preferred return rate is adjusted every three years through a negotiated agreement with the Class A Interest holder or through a remarketing auction.

Our noncontrolling interests contain restrictive covenants. As of August 25, 2013, we were in compliance with all of these covenants.

(9) Stockholders’ Equity

During the fourth quarter of fiscal 2013, we entered into an accelerated share repurchase (ASR) agreement with an unrelated third party financial institution to repurchase an aggregate of $300.0 million of our outstanding common stock. Under the ASR agreement, we paid $300.0 million to the financial institution and received 5.5 million shares of common stock with a fair value of $270.0 million during the fourth quarter of fiscal 2013. We received an additional 0.6 million shares of common stock upon completion of the ASR agreement during the first quarter of fiscal 2014. As of May 26, 2013, we recorded this transaction as an increase in treasury stock of $270.0 million, and recorded the remaining $30.0 million as a decrease to additional paid in capital on our Consolidated Balance Sheets. Upon completion of the ASR agreement in the first quarter of fiscal 2014, we reclassified the $30.0 million to treasury stock from additional paid-in capital on our Consolidated Balance Sheets.

 

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The following table provides details of total comprehensive income (loss):

 

     Quarter Ended
Aug. 25, 2013
    Quarter Ended
Aug. 26, 2012
 
     General Mills     Noncontrolling
Interests
     Redeemable
Interest
    General Mills     Noncontrolling
Interests
    Redeemable
Interest
 
In Millions    Pretax     Tax     Net     Net      Net     Pretax     Tax     Net     Net     Net  

Net earnings, including earnings attributable to redeemable and noncontrolling interests

                   $ 459.3     $ 2.1      $ 6.7                     $ 548.9     $ 2.5     $ 10.7  

Other comprehensive income (loss):

                     

Foreign currency translation

   $ (121.7   $       (121.7     12.0        23.1     $ 60.3     $       60.3       (0.5     5.6  

Other fair value changes:

                     

Securities

     0.3       (0.1     0.2                    0.3       (0.1     0.2              

Hedge derivatives

     17.8       (6.0     11.8              0.3       (8.6     1.5       (7.1           (0.4

Reclassification to earnings:

                     

Hedge derivatives (a)

     (1.8           (1.8            (0.2     4.5       (1.4     3.1             0.7  

Amortization of losses and prior service costs (b)

     42.6       (16.2     26.4                    40.0       (15.3     24.7              

Other comprehensive income (loss)

   $ (62.8   $ (22.3     (85.1     12.0        23.2     $ 96.5     $ (15.3     81.2       (0.5     5.9  

Total comprehensive income

                   $ 374.2     $ 14.1      $ 29.9                     $ 630.1     $ 2.0     $ 16.6  
                                                                                   

 

(a) Loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.

 

(b) Loss reclassified from AOCI into earnings is reported in SG&A expenses.

Except for reclassifications to earnings, changes in other comprehensive income (loss) are primarily non-cash items.

Accumulated other comprehensive loss balances, net of tax effects, were as follows:

 

In Millions    Aug. 25,
2013
    May 26,
2013
 

Foreign currency translation adjustments

   $ 141.4     $ 263.1  

Unrealized gain (loss) from:

    

Securities

     2.8       2.6  

Hedge derivatives

     (31.7     (41.7

Pension, other postretirement, and postemployment benefits:

    

Net actuarial loss

     (1,775.9     (1,801.5

Prior service costs

     (7.0     (7.8

Accumulated other comprehensive loss

   $     (1,670.4   $     (1,585.3
                  

 

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(10) Stock Plans

We have various stock-based compensation programs under which awards, including stock options, restricted stock, and restricted stock units, may be granted to employees and non-employee directors. These programs and related accounting are described on page 76 of our Annual Report on Form 10-K for the fiscal year ended May 26, 2013.

Compensation expense related to stock-based payments recognized in the Consolidated Statements of Earnings was as follows:

 

     Quarter Ended  
In Millions    Aug. 25,
2013
     Aug. 26,
2012
 

Compensation expense related to stock-based payments

   $ 41.3      $ 43.2  
                   

As of August 25, 2013, unrecognized compensation expense related to non-vested stock options and restricted stock units was $181.6 million. This expense will be recognized over 24 months, on average.

Net cash proceeds from the exercise of stock options less shares used for withholding taxes and the intrinsic value of options exercised were as follows:

 

     Quarter Ended  
In Millions   

Aug. 25,

2013

     Aug. 26,
2012
 

Net cash proceeds

   $ 11.7      $ 39.0  

Intrinsic value of options exercised

   $ 50.3      $ 58.2  
                   

We estimate the fair value of each option on the grant date using a Black-Scholes option-pricing model. Black-Scholes option-pricing models require us to make predictive assumptions regarding future stock price volatility, employee exercise behavior, and dividend yield. We estimate our future stock price volatility using the historical volatility over the expected term of the option, excluding time periods of volatility we believe a marketplace participant would exclude in estimating our stock price volatility. We also have considered, but did not use, implied volatility in our estimate, because trading activity in options on our stock, especially those with tenors of greater than 6 months, is insufficient to provide a reliable measure of expected volatility. Our method of selecting the other valuation assumptions is explained on pages 76 and 77 in our Annual Report on Form 10-K for the fiscal year ended May 26, 2013.

The estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:

 

     Quarter Ended  
      Aug. 25,
2013
    Aug. 26,
2012
 

Estimated fair values of stock options granted

   $ 6.03      $ 3.65   

Assumptions:

    

Risk-free interest rate

     2.6     1.6

Expected term

     9.0 years        9.0 years   

Expected volatility

     17.4     17.3

Dividend yield

     3.1     3.5
                  

 

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Information on stock option activity follows:

 

     

Options

Outstanding

(Thousands)

   

Weighted-
Average
Exercise

Price

Per Share

    

Weighted-

Average
Remaining
Contractual

Term (Years)

    

Aggregate

Intrinsic

Value

(Millions)

 

Balance as of May 26, 2013

     47,672.1     $ 30.22        

Granted

     2,789.8       48.33        

Exercised

     (1,840.1     24.12        

Forfeited or expired

     (38.6     37.68                    

Outstanding as of Aug. 25, 2013

     48,583.2     $ 31.49        5.20      $ 890.8  

Exercisable as of Aug. 25, 2013

     33,776.6     $ 27.94        3.89      $ 739.1  
                                    

Information on restricted stock unit activity follows:

 

     Equity Classified      Liability Classified  
      Share-
Settled
Units
(Thousands)
   

Weighted-
Average

Grant-Date

Fair Value

     Share-
Settled
Units
(Thousands)
   

Weighted-
Average

Grant-Date

Fair Value

     Cash-Settled
Share-Based
Units
(Thousands)
   

Weighted-
Average

Grant-Date

Fair Value

 

Non-vested as of May 26, 2013

     8,042.2     $ 35.89        388.2     $ 32.60        2,287.8     $ 38.41  

Granted

     1,901.3       48.37        75.9       48.39                 

Vested

     (1,677.1     28.55        (127.0     28.39        (1,421.1     28.00  

Forfeited

     (57.5     39.53                       (4.8     35.89  

Non-vested as of Aug. 25, 2013

     8,208.9     $ 40.06        337.1     $ 36.54        861.9     $ 48.37  
                                                    

The total grant-date fair value of restricted stock unit awards that vested in the quarter ended August 25, 2013 was $91.3 million, and restricted stock units with a grant-date fair value of $99.4 million vested in the quarter ended August 26, 2012.

 

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(11) Earnings Per Share

Basic and diluted earnings per share (EPS) were calculated using the following:

 

     Quarter Ended  
In Millions, Except per Share Data    Aug. 25,
2013
     Aug. 26,
2012
 

Net earnings attributable to General Mills

   $ 459.3      $ 548.9  
                   

Average number of common shares - basic EPS

     643.0        650.4  

Incremental share effect from: (a)

     

Stock options

     12.8        12.4  

Restricted stock, restricted stock units, and other

     4.5        4.6  

Average number of common shares - diluted EPS

     660.3        667.4  
                   

Earnings per share - basic

   $ 0.71      $ 0.84  

Earnings per share - diluted

   $ 0.70      $ 0.82  
                   

 

(a) Incremental shares from stock options and restricted stock units are computed by the treasury stock method. Stock options and restricted stock units excluded from our computation of diluted EPS because they were not dilutive were as follows:

 

     Quarter Ended  
In Millions    Aug. 25,
2013
     Aug. 26,
2012
 

Anti-dilutive stock options and restricted stock units

     1.4        5.1  
                   

(12) Share Repurchases

During the first quarter of fiscal 2014, we repurchased 6.5 million shares of common stock for an aggregate purchase price of $327.3 million, including 0.6 million shares pursuant to the completion of an ASR agreement. During the first quarter of fiscal 2013, we repurchased 7.1 million shares of common stock for an aggregate purchase price of $272.5 million.

(13) Statements of Cash Flows

During the quarter ended August 25, 2013, we made net cash interest payments of $126.2 million, compared to $120.5 million in the same period last year. Also, in the quarter ended August 25, 2013, we made tax payments of $47.6 million, compared to $47.0 million in the same period last year.

 

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(14) Retirement and Postemployment Benefits

Components of net pension, other postretirement, and postemployment expense were as follows:

 

     Defined Benefit
Pension Plans
    Other Postretirement
Benefit Plans
    Postemployment
Benefit Plans
 
     Quarter Ended     Quarter Ended     Quarter Ended  
In Millions    Aug. 25,
2013
    Aug. 26,
2012
    Aug. 25,
2013
    Aug. 26,
2012
    Aug. 25,
2013
     Aug. 26,
2012
 

Service cost

   $ 33.2     $ 31.1     $ 5.9     $ 5.3     $ 1.9      $ 1.9  

Interest cost

     59.8       59.3       12.6       12.9       1.0        1.1  

Expected return on plan assets

     (113.8     (107.0     (8.7     (8.0               

Amortization of losses

     37.5       34.0       3.8       4.3       0.2        0.5  

Amortization of prior service costs (credits)

     1.4       1.6       (0.9     (0.9     0.6        0.5  

Other adjustments

                                 2.5        2.8  

Net expense

   $ 18.1     $ 19.0     $ 12.7     $ 13.6     $ 6.2      $ 6.8  
                                                   

(15) Business Segment 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; International; and Convenience Stores and Foodservice.

Our U.S. Retail segment reflects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, and drug, dollar and discount chains operating throughout the United States. Our major product categories in this business segment are ready-to-eat cereals, refrigerated yogurt, ready-to-serve soup, dry dinners, shelf stable and frozen vegetables, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks, and a wide variety of organic products including granola bars, cereal, and soup.

Our International segment consists of retail and foodservice businesses outside of the United States. In Canada, our major product categories are ready-to-eat cereals, shelf stable and frozen vegetables, dry dinners, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza snacks, refrigerated yogurt, and grain and fruit snacks. In markets outside North America, our product categories include super-premium ice cream and frozen desserts, refrigerated yogurt, snacks, shelf stable and frozen vegetables, refrigerated and frozen dough products, seasonings, and dry dinners. Our International segment also includes products manufactured in the United States for export, mainly to Caribbean and Latin American markets, as well as products we manufacture for sale to our international joint ventures. Revenues from export activities and franchise fees are reported in the region or country where the end customer is located.

In the first quarter of fiscal 2014, we c