GENERAL MILLS INC - Annual Report: 2020 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

RANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED May 31, 2020

£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)

(763)764-7600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes RNo £

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £No R

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 RNo £

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes RNo £

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

Emerging growth company £

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. R

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes £No R

Aggregate market value of Common Stock held by non-affiliates of the registrant, based on the closing price of $52.69 per share as reported on the New York Stock Exchange on November 24, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter): $31,856.1 million.

Number of shares of Common Stock outstanding as of June 15, 2020: 609,869,264 (excluding 144,744,064 shares held in the treasury).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 2020 Annual Meeting of Shareholders are incorporated by reference into Part III.

Table of Contents

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PART I

ITEM 1 - Business

General Mills, Inc. was incorporated in Delaware in 1928. The terms “General Mills,” “Company,” “registrant,” “we,” “us,” and “our” mean General Mills, Inc. and all subsidiaries included in the Consolidated Financial Statements in Item 8 of this report unless the context indicates otherwise.

Certain terms used throughout this report are defined in a glossary in Item 8 of this report.

COMPANY OVERVIEW

We are a leading global manufacturer and marketer of branded consumer foods sold through retail stores. We also are a leading supplier of branded and unbranded food products to the North American foodservice and commercial baking industries. We are also a leading manufacturer and marketer in the wholesome natural pet food category. We manufacture our products in 13 countries and market them in more than 100 countries. In addition to our consolidated operations, we have 50 percent interests in two strategic joint ventures that manufacture and market food products sold in more than 130 countries worldwide.

The results of our Pet operating segment include 13 months of results in fiscal 2020 as we changed the Pet operating segment’s reporting period from an April fiscal year end to a May fiscal year end to match our fiscal calendar. Fiscal 2019 included 12 months of results, and fiscal 2018 did not include results for the Pet operating segment.

We manage and review the financial results of our business under five operating segments: North America Retail; Convenience Stores & Foodservice; Europe & Australia; Asia & Latin America; and Pet. See Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in Item 7 of this report for a description of our segments.

We offer a variety of food products that provide great taste, nutrition, convenience, and value for consumers around the world. Our business is focused on the following large, global categories:

snacks, including grain, fruit and savory snacks, nutrition bars, and frozen hot snacks;

ready-to-eat cereal;

convenient meals, including meal kits, ethnic meals, pizza, soup, side dish mixes, frozen breakfast, and frozen entrees;

yogurt;

wholesome natural pet food;

super-premium ice cream;

baking mixes and ingredients; and

refrigerated and frozen dough.

Our Cereal Partners Worldwide (CPW) joint venture with Nestlé S.A. (Nestlé) competes in the ready-to-eat cereal category in markets outside North America, and our Häagen-Dazs Japan, Inc. (HDJ) joint venture competes in the super-premium ice cream category in Japan. For net sales contributed by each class of similar products, please see Note 17 to the Consolidated Financial Statements in Item 8 of this report.

Customers

Our primary customers are grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains, e-commerce retailers, commercial and noncommercial foodservice distributors and operators, restaurants, convenience stores, and pet specialty stores. We generally sell to these customers through our direct sales force. We use broker and distribution arrangements for certain products and to serve certain types of customers. For further information on our customer credit and product return practices, please refer to Note 2 to the Consolidated Financial Statements in Item 8 of this report. During fiscal 2020, Walmart Inc. and its affiliates (Walmart) accounted for 21 percent of our consolidated net sales and 30 percent of net sales of our North America Retail segment. No other customer accounted for 10 percent or more of our consolidated net sales. For further information on significant customers, please refer to Note 8 to the Consolidated Financial Statements in Item 8 of this report.

Competition

The packaged and pet food categories are highly competitive, with numerous manufacturers of varying sizes in the United States and throughout the world. The categories in which we participate also are very competitive. Our principal competitors in these categories are manufacturers, as well as retailers with their own branded products. Competitors market and sell their products through brick-and-mortar stores and e-commerce. All of our principal competitors have substantial financial, marketing, and other resources. Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing, promotional activity, convenient ordering and delivery to the consumer, and the ability to identify and satisfy consumer preferences. Our principal strategies for competing in each of our segments include unique consumer insights,

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effective customer relationships, superior product quality, innovative advertising, product promotion, product innovation aligned with consumers’ needs, an efficient supply chain, and price. In most product categories, we compete not only with other widely advertised, branded products, but also with regional brands and with generic and private label products that are generally sold at lower prices. Internationally, we compete with both multi-national and local manufacturers, and each country includes a unique group of competitors.

Raw materials, ingredients, and packaging

The principal raw materials that we use are grains (wheat, oats, and corn), dairy products, sugar, fruits, vegetable oils, meats, nuts, vegetables, and other agricultural products. We also use substantial quantities of carton board, corrugated, plastic and metal packaging materials, operating supplies, and energy. Most of these inputs for our domestic and Canadian operations are purchased from suppliers in the United States. In our other international operations, inputs that are not locally available in adequate supply may be imported from other countries. The cost of these inputs may fluctuate widely due to external conditions such as weather, climate change, product scarcity, limited sources of supply, commodity market fluctuations, currency fluctuations, trade tariffs, pandemics (including the COVID-19 pandemic), and changes in governmental agricultural and energy policies and regulations. We have some long-term fixed price contracts, but the majority of our inputs are purchased on the open market. We believe that we will be able to obtain an adequate supply of needed inputs. Occasionally and where possible, we make advance purchases of items significant to our business in order to ensure continuity of operations. Our objective is to procure materials meeting both our quality standards and our production needs at price levels that allow a targeted profit margin. Since these inputs generally represent the largest variable cost in manufacturing our products, to the extent possible, we often manage the risk associated with adverse price movements for some inputs using a variety of risk management strategies. We also have a grain merchandising operation that provides us efficient access to, and more informed knowledge of, various commodity markets, principally wheat and oats. This operation holds physical inventories that are carried at net realizable value and uses derivatives to manage its net inventory position and minimize its market exposures.

RESEARCH AND DEVELOPMENT

Our research and development resources are focused on new product development, product improvement, process design and improvement, packaging, and exploratory research in new business and technology areas. Research and development expenditures were $224 million in fiscal 2020 and $222 million in fiscal 2019.

TRADEMARKS AND PATENTS

Our products are marketed under a variety of valuable trademarks. Some of the more important trademarks used in our global operations (set forth in italics in this report) include Annie’s, Betty Crocker, Bisquick, Blue Buffalo, Blue Basics, Blue Freedom, Blue Wilderness, Bugles, Cascadian Farm, Cheerios, Chex, Cinnamon Toast Crunch, Cocoa Puffs, Cookie Crisp, EPIC, Fiber One, Food Should Taste Good, Fruit by the Foot, Fruit Gushers, Fruit Roll-Ups, Gardetto's, Go-Gurt, Gold Medal, Golden Grahams, Häagen-Dazs, Helpers, Jus-Rol, Kitano, Kix, Lärabar, Latina, Liberté, Lucky Charms, Muir Glen, Nature Valley, Oatmeal Crisp, Old El Paso, Oui, Pillsbury, Progresso, Raisin Nut Bran, Total, Totino’s, Trix, Wanchai Ferry, Wheaties, Yoki, and Yoplait. We protect these marks as appropriate through registrations in the United States and other jurisdictions. Depending on the jurisdiction, trademarks are generally valid as long as they are in use or their registrations are properly maintained and they have not been found to have become generic. Registrations of trademarks can also generally be renewed indefinitely for as long as the trademarks are in use.

Some of our products are marketed under or in combination with trademarks that have been licensed from others for both long-standing products (e.g., Reese’s Puffs for cereal, Green Giant for vegetables in certain countries, and Cinnabon for refrigerated dough, frozen pastries, and baking products) and shorter term promotional products (e.g., fruit snacks sold under various third party equities).

Our cereal trademarks are licensed to CPW and may be used in association with the Nestlé trademark. Nestlé licenses certain of its trademarks to CPW, including the Nestlé and Uncle Toby’s trademarks. The Häagen-Dazs trademark is licensed royalty-free and exclusively to Nestlé for ice cream and other frozen dessert products in the United States and Canada. The Häagen-Dazs trademark is also licensed to HDJ. The Pillsbury brand and the Pillsbury Doughboy character are subject to an exclusive, royalty-free license that was granted to a third party and its successors in the dessert mix and baking mix categories in the United States and under limited circumstances in Canada and Mexico.

The Yoplait trademark and other related trademarks are owned by Yoplait Marques SNC, an entity in which we own a 50 percent interest. These marks are licensed exclusively to Yoplait SAS, an entity in which we own a 51 percent interest. Yoplait SAS licenses these trademarks to its franchisees. The Liberté trademark and other related trademarks are owned by Liberté Marques Sàrl, an entity in which we own a 50 percent interest.

We continue our focus on developing and marketing innovative, proprietary products, many of which use proprietary expertise, recipes and formulations. We consider the collective rights under our various patents, which expire from time to time, a valuable asset, but we do not believe that our businesses are materially dependent upon any single patent or group of related patents.

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SEASONALITY

In general, demand for our products is evenly balanced throughout the year. However, within our North America Retail segment demand for refrigerated dough, frozen baked goods, and baking products is stronger in the fourth calendar quarter. Demand for Progresso soup is higher during the fall and winter months. Internationally, within our Europe & Australia and Asia & Latin America segments, demand for Häagen-Dazs ice cream is higher during the summer months and demand for baking mix and dough products increases during winter months. Due to the offsetting impact of these demand trends, as well as the different seasons in the northern and southern hemispheres, our international segments’ net sales are generally evenly balanced throughout the year.

BACKLOG

Orders are generally filled within a few days of receipt and are subject to cancellation at any time prior to shipment. In the fourth quarter of fiscal 2020, we experienced increased demand in our retail businesses as the COVID-19 pandemic and related governmental restrictions resulted in a significant increase in at-home food consumption. We have taken steps to increase our production capacity to meet the increased demand for our retail products, including increasing production time at our manufacturing facilities and prioritizing certain product lines to increase manufacturing efficiency. Notwithstanding these efforts, we have been, and continue to be, unable to fulfill all orders we receive from our customers.

WORKING CAPITAL

A description of our working capital is included in the Liquidity section of MD&A in Item 7 of this report. Our product return practices are described in Note 2 to the Consolidated Financial Statements in Item 8 of this report.

EMPLOYEES

As of May 31, 2020, we had approximately 35,000 full- and part-time employees.

QUALITY AND SAFETY REGULATION

The manufacture and sale of consumer and pet food products is highly regulated. In the United States, our activities are subject to regulation by various federal government agencies, including the Food and Drug Administration, Department of Agriculture, Federal Trade Commission, Department of Commerce, and Environmental Protection Agency, as well as various state and local agencies. Our business is also regulated by similar agencies outside of the United States.

ENVIRONMENTAL MATTERS

As of May 31, 2020, we were involved with two response actions associated with the alleged or threatened release of hazardous substances or wastes located in Minneapolis, Minnesota and Moonachie, New Jersey.

Our operations are subject to the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act, and the Federal Insecticide, Fungicide, and Rodenticide Act, and all similar state, local, and foreign environmental laws and regulations applicable to the jurisdictions in which we operate.

Based on current facts and circumstances, we believe that neither the results of our environmental proceedings nor our compliance in general with environmental laws or regulations will have a material adverse effect upon our capital expenditures, earnings, or competitive position.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

The section below provides information regarding our executive officers as of July 2, 2020:

Richard C. Allendorf, age 59, is General Counsel and Secretary. Mr. Allendorf joined General Mills in 2001 from The Pillsbury Company. He was promoted to Vice President, Deputy General Counsel in 2010, first overseeing the legal affairs of the U.S. Retail segment and Consumer Food Sales and then, in 2012, overseeing the legal affairs of the International segment and Global Ethics and Compliance. He was named to his present position in February 2015. Prior to joining General Mills, he practiced law with the Shearman and Sterling and Mackall, Crounse and Moore law firms. He was in finance with General Electric prior to his legal career.

Jodi Benson, age 55, is Chief Innovation, Technology and Quality Officer. Ms. Benson joined General Mills in 2001 from The Pillsbury Company. She held a variety of positions before becoming the leader of our One Global Dairy Platform from 2011 to March 2016. She was named Vice President for our International business segment from April 2016 to March 2017, and Vice President of

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the Global Innovation, Technology, and Quality Capabilities Group from April 2017 to July 2018. She was named to her current position in August 2018.

Kofi A. Bruce, age 50, is Chief Financial Officer. Mr. Bruce joined General Mills in 2009 as Vice President, Treasurer after serving in a variety of senior management positions with Ecolab and Ford Motor Company. He served as Treasurer until 2010 when he was named Vice President, Finance for Yoplait. Mr. Bruce reassumed his role as Vice President, Treasurer from 2012 until 2014 when he was named Vice President, Finance for Convenience Stores & Foodservice. He was named Vice President, Controller in August 2017, Vice President, Financial Operations in September 2019, and to his present position in February 2020.

John R. Church, age 54, is Chief Supply Chain and Global Business Solutions Officer. Mr. Church joined General Mills in 1988 as a Product Developer in the Big G cereals division and held various positions before becoming Vice President, Engineering in 2003. In 2005, his role was expanded to include development of the Company’s strategy for the global sourcing of raw materials and manufacturing capabilities. He was named Vice President, Supply Chain Operations in 2007, Senior Vice President, Supply Chain in 2008, Executive Vice President, Supply Chain in 2013, and to his present position in June 2017.

Jeffrey L. Harmening, age 53, is Chairman of the Board and Chief Executive Officer. Mr. Harmening joined General Mills in 1994 and served in various marketing roles in the Betty Crocker, Yoplait, and Big G cereal divisions. He was named Vice President, Marketing for CPW in 2003 and Vice President of the Big G cereal division in 2007. In 2011, he was promoted to Senior Vice President for the Big G cereal division. Mr. Harmening was appointed Senior Vice President, Chief Executive Officer of CPW in 2012. Mr. Harmening returned from CPW in 2014 and was named Executive Vice President, Chief Operating Officer, U.S. Retail. He became President, Chief Operating Officer in July 2016. He was named Chief Executive Officer in June 2017 and Chairman of the Board in January 2018. Mr. Harmening is a director of The Toro Company.

Dana M. McNabb, age 44, is Group President, Europe & Australia. Ms. McNabb joined General Mills in 1999 and held a variety of marketing roles in Cereal, Snacks, Meals, and New Products before becoming Vice President, Marketing for CPW in 2011 and Vice President, Marketing for the Circle of Champions Business Unit in October 2015. She was promoted to President, U.S. Cereal Operating Unit in December 2016 and named to her present position in January 2020.

Jaime Montemayor, age 56, is Chief Digital and Technology Officer. He spent 21 years at PepsiCo, Inc., serving in roles of increasing responsibility, including most recently as Senior Vice President and Chief Information Officer of PepsiCo’s Americas Foods segment from 2013 to October 2015, and Senior Vice President and Chief Information Officer, Digital Innovation, Data and Analytics, PepsiCo from November 2015 to July 2016. Mr. Montemayor served as Chief Technology Officer of 7-Eleven Inc. from April 2017 until October 2017. He assumed his current role in February 2020 after founding and operating a digital technology consulting company from November 2017 until January 2020.

Jon J. Nudi, age 50, is Group President, North America Retail. Mr. Nudi joined General Mills in 1993 as a Sales Representative and held a variety of roles in Consumer Foods Sales. In 2005, he moved into marketing roles in the Meals division and was elected Vice President in 2007. Mr. Nudi was named Vice President; President, Snacks, in 2010, Senior Vice President, President, Europe/Australasia in 2014, and Senior Vice President; President, U.S. Retail in September 2016. He was named to his present position in January 2017.

Shawn P. O’Grady, age 56, is Group President, Convenience Stores & Foodservice and Chief Revenue Development Officer. Mr. O’Grady joined General Mills in 1990 and held several marketing roles in the Snacks, Meals, and Big G cereal divisions. He was promoted to Vice President in 1998 and held marketing positions in the Betty Crocker and Pillsbury USA divisions. In 2004, he moved into Consumer Foods Sales, becoming Vice President, President, U.S. Retail Sales in 2007, Senior Vice President, President, Consumer Foods Sales Division in 2010, and Senior Vice President, President, Sales & Channel Development in 2012. He was named to his current position in January 2017.

Mark A. Pallot, age 47, is Vice President, Chief Accounting Officer. Mr. Pallot joined General Mills in 2007 and served as Director, Financial Reporting until August 2017, when he was named Vice President, Assistant Controller. He was elected to his present position in February 2020. Prior to joining General Mills, Mr. Pallot held accounting and financial reporting positions at Residential Capital, LLC, Metris, Inc., CIT Group Inc., and Ernst & Young, LLP.

Ivan Pollard, age 58, is Global Chief Marketing Officer. Mr. Pollard assumed his current role in July 2017 when he joined General Mills from The Coca-Cola Company. At Coca-Cola, from 2011 to 2014, Mr. Pollard served as Vice President, Global Connections until he was promoted to Senior Vice President, Strategic Marketing, a role he held until June 2017. Prior to joining The Coca-Cola Company, Mr. Pollard was a global partner at Naked Communications, a connections planning company. His prior communications planning experience included work at the BMP, DDP Needham, and Wieden+Kennedy advertising agencies.

Bethany Quam, age 49, is Group President, Pet. Ms. Quam joined General Mills in 1993 and held a variety of positions before becoming Vice President, Strategic Planning in 2007. She was promoted to Vice President, Field Sales, Channels in 2012, Vice

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President; President, Convenience Stores & Foodservice in 2014, and Senior Vice President; President, Europe & Australia in August 2016, and Group President; Europe & Australia in January 2017. She was named to her current position in October 2019.

Sean Walker, age 54, is Group President, Asia & Latin America. Mr. Walker joined General Mills in 1989 and held a variety of positions before becoming Vice President, President of Latin America in 2009. He was named Senior Vice President, President Latin America in 2012 and Senior Vice President, Corporate Strategy in September 2016. He was named to his current position in February 2019.

Jacqueline Williams-Roll, age 51, is Chief Human Resources Officer. Ms. Williams-Roll joined General Mills in 1995. She held human resources leadership roles in Supply Chain, Finance, Marketing, and Organization Effectiveness, and she also worked a large part of her career on businesses outside of the United States. She was named Vice President, Human Resources, International in 2010, and then promoted to Senior Vice President, Human Resources Operations in 2013. She was named to her present position in September 2014. Prior to joining General Mills, she held sales and management roles with Jenny Craig International.

WEBSITE ACCESS

Our website is www.GeneralMills.com. We make available, free of charge in the “Investors” portion of this website, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (1934 Act) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). All such filings are available on the SEC’s website at www.sec.gov. Reports of beneficial ownership filed pursuant to Section 16(a) of the 1934 Act are also available on our website.

ITEM 1A - Risk Factors

Our business is subject to various risks and uncertainties. Any of the risks described below could materially, adversely affect our business, financial condition, and results of operations.

Global health developments and economic uncertainty resulting from the COVID-19 pandemic could materially and adversely affect our business, financial condition, and results of operations.

The public health crisis caused by the COVID-19 pandemic and the measures being taken by governments, businesses, including us, and the public at large to limit COVID-19’s spread have had, and we expect will continue to have, certain negative impacts on our business, financial condition, and results of operations including, without limitation, the following:

We have experienced, and may continue to experience, a decrease in sales of certain of our products in markets around the world that have been affected by the COVID-19 pandemic. In particular, sales of our products in the away-from-home food outlets across all our major markets have been negatively affected by reduced consumer traffic resulting from shelter-in-place regulations or recommendations and closings of restaurants, schools and cafeterias. If the COVID-19 pandemic persists or intensifies, its negative impacts on our sales, particularly in away-from-home food outlets, could be more prolonged and may become more severe.

Deteriorating economic and political conditions in our major markets affected by the COVID-19 pandemic, such as increased unemployment, decreases in disposable income, declines in consumer confidence, or economic slowdowns or recessions, could cause a decrease in demand for our products.

We have experienced minor temporary workforce disruptions in our supply chain as a result of the COVID-19 pandemic. We have implemented employee safety measures, based on guidance from the Centers for Disease Control and Prevention and World Health Organization, across all our supply chain facilities, including proper hygiene, social distancing, mask use, and temperature screenings. These measures may not be sufficient to prevent the spread of COVID-19 among our employees. Illness, travel restrictions, absenteeism, or other workforce disruptions could negatively affect our supply chain, manufacturing, distribution, or other business processes. We may face additional production disruptions in the future, which may place constraints on our ability to produce products in a timely manner or may increase our costs.

Changes and volatility in consumer purchasing and consumption patterns may increase demand for our products in one quarter (such as occurred in the fourth quarter of fiscal 2020), resulting in decreased consumer demand for our products in subsequent quarters. While we experienced increased demand for our products in the fourth quarter of fiscal 2020, this increase may moderate or reverse if consumers alter their purchasing habits. Short term or sustained increases in consumer demand at our retail customers may exceed our production capacity or otherwise strain our supply chain.

The failure of third parties on which we rely, including those third parties who supply our ingredients, packaging, capital equipment and other necessary operating materials, contract manufacturers, distributors, contractors, commercial banks, and external business partners, to meet their obligations to us, or significant disruptions in their ability to do so, may negatively impact our operations.

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Significant changes in the political conditions in markets in which we manufacture, sell, or distribute our products (including quarantines, import/export restrictions, price controls, governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, and sale of our products) could adversely impact our operations and results.

Actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19 pandemic may result in investigations, legal claims or litigation against us.

The categories in which we participate are very competitive, and if we are not able to compete effectively, our results of operations could be adversely affected.

The consumer and pet food categories in which we participate are very competitive. Our principal competitors in these categories are manufacturers, as well as retailers with their own branded and private label products. Competitors market and sell their products through brick-and-mortar stores and e-commerce. All of our principal competitors have substantial financial, marketing, and other resources. In most product categories, we compete not only with other widely advertised branded products, but also with regional brands and with generic and private label products that are generally sold at lower prices. Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing, promotional activity, convenient ordering and delivery to the consumer, and the ability to identify and satisfy consumer preferences. If our large competitors were to seek an advantage through pricing or promotional changes, we could choose to do the same, which could adversely affect our margins and profitability. If we did not do the same, our revenues and market share could be adversely affected. Our market share and revenue growth could also be adversely impacted if we are not successful in introducing innovative products in response to changing consumer demands or by new product introductions of our competitors. If we are unable to build and sustain brand equity by offering recognizably superior product quality, we may be unable to maintain premium pricing over generic and private label products.

We may be unable to maintain our profit margins in the face of a consolidating retail environment.

There has been significant consolidation in the grocery industry, resulting in customers with increased purchasing power. In addition, large retail customers may seek to use their position to improve their profitability through improved efficiency, lower pricing, increased reliance on their own brand name products, increased emphasis on generic and other economy brands, and increased promotional programs. If we are unable to use our scale, marketing expertise, product innovation, knowledge of consumers’ needs, and category leadership positions to respond to these demands, our profitability and volume growth could be negatively impacted. In addition, the loss of any large customer could adversely affect our sales and profits. In fiscal 2020, Walmart accounted for 21 percent of our consolidated net sales and 30 percent of net sales of our North America Retail segment. For more information on significant customers, please see Note 8 to the Consolidated Financial Statements in Item 8 of this report.

Price changes for the commodities we depend on for raw materials, packaging, and energy may adversely affect our profitability.

The principal raw materials that we use are commodities that experience price volatility caused by external conditions such as weather, climate change, product scarcity, limited sources of supply, commodity market fluctuations, currency fluctuations, trade tariffs, pandemics (such as the COVID-19 pandemic), and changes in governmental agricultural and energy policies and regulations. Commodity prices have become, and may continue to be, more volatile during the COVID-19 pandemic. Commodity price changes may result in unexpected increases in raw material, packaging, and energy costs. If we are unable to increase productivity to offset these increased costs or increase our prices, we may experience reduced margins and profitability. We do not fully hedge against changes in commodity prices, and the risk management procedures that we do use may not always work as we intend.

Volatility in the market value of derivatives we use to manage exposures to fluctuations in commodity prices will cause volatility in our gross margins and net earnings.

We utilize derivatives to manage price risk for some of our principal ingredient and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), dairy products, natural gas, and diesel fuel. Changes in the values of these derivatives are recorded in earnings currently, resulting in volatility in both gross margin and net earnings. These gains and losses are reported in cost of sales in our Consolidated Statements of Earnings and in unallocated corporate items outside our segment operating results until we utilize the underlying input in our manufacturing process, at which time the gains and losses are reclassified to segment operating profit. We also record our grain inventories at net realizable value. We may experience volatile earnings as a result of these accounting treatments.

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If we are not efficient in our production, our profitability could suffer as a result of the highly competitive environment in which we operate.

Our future success and earnings growth depend in part on our ability to be efficient in the production and manufacture of our products in highly competitive markets. Gaining additional efficiencies may become more difficult over time. Our failure to reduce costs through productivity gains or by eliminating redundant costs resulting from acquisitions or divestitures could adversely affect our profitability and weaken our competitive position. Many productivity initiatives involve complex reorganization of manufacturing facilities and production lines. Such manufacturing realignment may result in the interruption of production, which may negatively impact product volume and margins. We periodically engage in restructuring and cost savings initiatives designed to increase our efficiency and reduce expenses. If we are unable to execute those initiatives as planned, we may not realize all or any of the anticipated benefits, which could adversely affect our business and results of operations.

Disruption of our supply chain could adversely affect our business.

Our ability to make, move, and sell products is critical to our success. Damage or disruption to raw material supplies or our manufacturing or distribution capabilities due to weather, climate change, natural disaster, fire, terrorism, cyber-attack, pandemics (such as the COVID-19 pandemic), governmental restrictions or mandates, strikes, import/export restrictions, or other factors could impair our ability to manufacture or sell our products. Many of our product lines are manufactured at a single location or sourced from a single supplier. The failure of third parties on which we rely, including those third parties who supply our ingredients, packaging, capital equipment and other necessary operating materials, contract manufacturers, distributors, contractors, and external business partners, to meet their obligations to us, or significant disruptions in their ability to do so, may negatively impact our operations. Our suppliers’ policies and practices can damage our reputation and the quality and safety of our products. Disputes with significant suppliers, including disputes regarding pricing or performance, could adversely affect our ability to supply products to our customers and could materially and adversely affect our sales, financial condition, and results of operations. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, particularly when a product is sourced from a single location or supplier, could adversely affect our business and results of operations, as well as require additional resources to restore our supply chain.

We have experienced minor temporary workforce disruptions in our supply chain as a result of the COVID-19 pandemic. We have implemented employee safety measures, based on guidance from the Centers for Disease Control and Prevention and World Health Organization, across all our supply chain facilities, including proper hygiene, social distancing, mask use, and temperature screenings. These measures may not be sufficient to prevent the spread of COVID-19 among our employees. Illness, travel restrictions, absenteeism, or other workforce disruptions could negatively affect our supply chain, manufacturing, distribution, or other business processes. We may face additional production disruptions in the future, which may place constraints on our ability to produce products in a timely manner or may increase our costs.

We experienced increased demand for our products in the fourth quarter of fiscal 2020 and were, and continue to be, unable to fill all customer orders. Short term or sustained increases in consumer demand at our retail customers may exceed our production capacity or otherwise strain our supply chain. Our failure to meet the demand for our products could adversely affect our business and results of operations.

Concerns with the safety and quality of our products could cause consumers to avoid certain products or ingredients.

We could be adversely affected if consumers in our principal markets lose confidence in the safety and quality of certain of our products or ingredients. Adverse publicity about these types of concerns, whether or not valid, may discourage consumers from buying our products or cause production and delivery disruptions.

If our products become adulterated, misbranded, or mislabeled, we might need to recall those items and may experience product liability claims if consumers or their pets are injured.

We may need to recall some of our products if they become adulterated, misbranded, or mislabeled. A widespread product recall could result in significant losses due to the costs of a recall, the destruction of product inventory, and lost sales due to the unavailability of product for a period of time. We could also suffer losses from a significant product liability judgment against us. A significant product recall or product liability case could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in our products, which could have an adverse effect on our business results and the value of our brands.

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We may be unable to anticipate changes in consumer preferences and trends, which may result in decreased demand for our products.

Our success depends in part on our ability to anticipate the tastes, eating habits, and purchasing behaviors of consumers and to offer products that appeal to their preferences in channels where they shop. Consumer preferences and category-level consumption may change from time to time and can be affected by a number of different trends and other factors. If we fail to anticipate, identify or react to these changes and trends, such as adapting to emerging e-commerce channels, or to introduce new and improved products on a timely basis, we may experience reduced demand for our products, which would in turn cause our revenues and profitability to suffer. Similarly, demand for our products could be affected by consumer concerns regarding the health effects of ingredients such as sodium, trans fats, genetically modified organisms, sugar, processed wheat, grain-free or legume-rich pet food, or other product ingredients or attributes.

We may be unable to grow our market share or add products that are in faster growing and more profitable categories.

The food industry’s growth potential is constrained by population growth. Our success depends in part on our ability to grow our business faster than populations are growing in the markets that we serve. One way to achieve that growth is to enhance our portfolio by adding innovative new products in faster growing and more profitable categories. Our future results will also depend on our ability to increase market share in our existing product categories. If we do not succeed in developing innovative products for new and existing categories, our growth and profitability could be adversely affected.

Economic downturns could limit consumer demand for our products.

The willingness of consumers to purchase our products depends in part on local economic conditions. In periods of economic uncertainty, consumers may purchase more generic, private label, and other economy brands and may forego certain purchases altogether. In those circumstances, we could experience a reduction in sales of higher margin products or a shift in our product mix to lower margin offerings. In addition, as a result of economic conditions or competitive actions, we may be unable to raise our prices sufficiently to protect margins. Consumers may also reduce the amount of food that they consume away from home at customers that purchase products from our Convenience Stores & Foodservice segment. Any of these events could have an adverse effect on our results of operations.

Deteriorating economic and political conditions in our major markets affected by the COVID-19 pandemic, such as increased unemployment, decreases in disposable income, declines in consumer confidence, or economic slowdowns or recessions, could cause a decrease in demand for our products.

Our results may be negatively impacted if consumers do not maintain their favorable perception of our brands.

Maintaining and continually enhancing the value of our many iconic brands is critical to the success of our business. The value of our brands is based in large part on the degree to which consumers react and respond positively to these brands. Brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products, our failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences, concerns about food safety, or our products becoming unavailable to consumers. Consumer demand for our products may also be impacted by changes in the level of advertising or promotional support. The use of social and digital media by consumers, us, and third parties increases the speed and extent that information or misinformation and opinions can be shared. Negative posts or comments about us, our brands, or our products on social or digital media could seriously damage our brands and reputation. If we do not maintain the favorable perception of our brands, our business results could be negatively impacted.

Our international operations are subject to political and economic risks.

In fiscal 2020, 24 percent of our consolidated net sales were generated outside of the United States. We are accordingly subject to a number of risks relating to doing business internationally, any of which could significantly harm our business. These risks include:

political and economic instability;

exchange controls and currency exchange rates;

tariffs on products and ingredients that we import and export;

nationalization or government control of operations;

compliance with anti-corruption regulations;

uncertainty relating to the impact of the United Kingdom’s exit from the European Union;

foreign tax treaties and policies; and

restriction on the transfer of funds to and from foreign countries, including potentially negative tax consequences.

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Our financial performance on a U.S. dollar denominated basis is subject to fluctuations in currency exchange rates. These fluctuations could cause material variations in our results of operations. Our principal exposures are to the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, Mexican peso, and Swiss franc. From time to time, we enter into agreements that are intended to reduce the effects of our exposure to currency fluctuations, but these agreements may not be effective in significantly reducing our exposure.

A strengthening in the U.S. dollar relative to other currencies in the countries in which we operate, such as has generally occurred during the COVID-19 pandemic to-date, would negatively affect our reported results of operations and financial results due to currency translation losses and currency transaction losses.

New regulations or regulatory-based claims could adversely affect our business.

Our facilities and products are subject to many laws and regulations administered by the United States Department of Agriculture, the Federal Food and Drug Administration, the Occupational Safety and Health Administration, and other federal, state, local, and foreign governmental agencies relating to the production, packaging, labelling, storage, distribution, quality, and safety of food products and the health and safety of our employees. Our failure to comply with such laws and regulations could subject us to lawsuits, administrative penalties, and civil remedies, including fines, injunctions, and recalls of our products. We advertise our products and could be the target of claims relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations. We may also be subject to new laws or regulations restricting our right to advertise our products, including restrictions on the audience to whom products are marketed. Changes in laws or regulations that impose additional regulatory requirements on us could increase our cost of doing business or restrict our actions, causing our results of operations to be adversely affected.

Significant COVID-19 related changes in the political conditions in markets in which we manufacture, sell or distribute our products (including quarantines, import/export restrictions, price controls, governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products) could adversely impact our operations and results.

We are subject to various federal, state, local, and foreign environmental laws and regulations. Our failure to comply with environmental laws and regulations could subject us to lawsuits, administrative penalties, and civil remedies. We are currently party to a variety of environmental remediation obligations. Due to regulatory complexities, uncertainties inherent in litigation, and the risk of unidentified contaminants on current and former properties of ours, the potential exists for remediation, liability, indemnification, and compliance costs to differ from our estimates. We cannot guarantee that our costs in relation to these matters, or compliance with environmental laws in general, will not exceed our established liabilities or otherwise have an adverse effect on our business and results of operations.

We have a substantial amount of indebtedness, which could limit financing and other options and in some cases adversely affect our ability to pay dividends.

As of May 31, 2020, we had total debt, redeemable interests, and noncontrolling interests of $14.4 billion. The agreements under which we have issued indebtedness do not prevent us from incurring additional unsecured indebtedness in the future. Our level of indebtedness may limit our:

ability to obtain additional financing for working capital, capital expenditures, or general corporate purposes, particularly if the ratings assigned to our debt securities by rating organizations were revised downward; and

flexibility to adjust to changing business and market conditions and may make us more vulnerable to a downturn in general economic conditions.

There are various financial covenants and other restrictions in our debt instruments and noncontrolling interests. If we fail to comply with any of these requirements, the related indebtedness, and other unrelated indebtedness, could become due and payable prior to its stated maturity and our ability to obtain additional or alternative financing may also be adversely affected.

Our ability to make scheduled payments on or to refinance our debt and other obligations will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and to financial, business, and other factors beyond our control.

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Global capital and credit market issues could negatively affect our liquidity, increase our costs of borrowing, and disrupt the operations of our suppliers and customers.

We depend on stable, liquid, and well-functioning capital and credit markets to fund our operations. Although we believe that our operating cash flows, financial assets, access to capital and credit markets, and revolving credit agreements will permit us to meet our financing needs for the foreseeable future, there can be no assurance that future volatility or disruption in the capital and credit markets will not impair our liquidity or increase our costs of borrowing. We also utilize interest rate derivatives to reduce the volatility of our financing costs. If we are not effective in hedging this volatility, we may experience an increase in our costs of borrowing. Our business could also be negatively impacted if our suppliers or customers experience disruptions resulting from tighter capital and credit markets or a slowdown in the general economy.

The COVID-19 pandemic has increased volatility and pricing in the capital markets. We may not have access to preferred sources of liquidity when needed or on terms we find acceptable, and our borrowing costs could increase. An economic or credit crisis could occur and impair credit availability and our ability to raise capital when needed. A disruption in the financial markets may have a negative effect on our derivative counterparties and could impair our banking or other business partners, on whom we rely for access to capital and as counterparties to our derivative contracts.

From time to time, we issue variable rate securities based on interbank offered rates (IBORs) and enter into interest rate swaps that contain a variable element based on an IBOR. There is currently uncertainty whether certain IBORs will continue to be available after 2021. If certain IBORs cease to be available, we may need to amend affected agreements, and we cannot predict what alternative index would be negotiated with our counterparties and security holders. As a result, our interest expense could increase and our available cash flow for general corporate requirements may be adversely affected.

Volatility in the securities markets, interest rates, and other factors could substantially increase our defined benefit pension, other postretirement benefit, and postemployment benefit costs.

We sponsor a number of defined benefit plans for employees in the United States, Canada, and various foreign locations, including defined benefit pension, retiree health and welfare, severance, and other postemployment plans. Our major defined benefit pension plans are funded with trust assets invested in a globally diversified portfolio of securities and other investments. Changes in interest rates, mortality rates, health care costs, early retirement rates, investment returns, and the market value of plan assets can affect the funded status of our defined benefit plans and cause volatility in the net periodic benefit cost and future funding requirements of the plans. A significant increase in our obligations or future funding requirements could have a negative impact on our results of operations and cash flows from operations.

Our business operations could be disrupted if our information technology systems fail to perform adequately or are breached.

Information technology serves an important role in the efficient and effective operation of our business. We rely on information technology networks and systems, including the internet, to process, transmit, and store electronic information to manage a variety of business processes and to comply with regulatory, legal, and tax requirements. Our information technology systems and infrastructure are critical to effectively manage our key business processes including digital marketing, order entry and fulfillment, supply chain management, finance, administration, and other business processes. These technologies enable internal and external communication among our locations, employees, suppliers, customers, and others and include the receipt and storage of personal information about our employees, consumers, and proprietary business information. Our information technology systems, some of which are dependent on services provided by third parties, may be vulnerable to damage, interruption, or shutdown due to any number of causes such as catastrophic events, natural disasters, fires, power outages, systems failures, telecommunications failures, security breaches, computer viruses, hackers, employee error or malfeasance, and other causes. Increased cyber-security threats pose a potential risk to the security and viability of our information technology systems, as well as the confidentiality, integrity, and availability of the data stored on those systems. The failure of our information technology systems to perform as we anticipate could disrupt our business and result in transaction errors, processing inefficiencies, data loss, legal claims or proceedings, regulatory penalties, and the loss of sales and customers. Any interruption of our information technology systems could have operational, reputational, legal, and financial impacts that may have a material adverse effect on our business.

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A change in the assumptions regarding the future performance of our businesses or a different weighted-average cost of capital used to value our reporting units or our indefinite-lived intangible assets could negatively affect our consolidated results of operations and net worth.

As of May 31, 2020, we had $20.5 billion of goodwill and indefinite-lived intangible assets. Goodwill for each of our reporting units is tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. We compare the carrying value of the reporting unit, including goodwill, to the fair value of the reporting unit. If the fair value of the reporting unit is less than the carrying value of the reporting unit, including goodwill, impairment has occurred. Our estimates of fair value are determined based on a discounted cash flow model. Growth rates for sales and profits are determined using inputs from our long-range planning process. We also make estimates of discount rates, perpetuity growth assumptions, market comparables, and other factors. If current expectations for growth rates for sales and profits are not met, or other market factors and macroeconomic conditions that could be affected by the COVID-19 pandemic or otherwise were to change, then our reporting units could become significantly impaired. Our Europe & Australia reporting unit had experienced declining business performance, and we continue to monitor this business. While we currently believe that our goodwill is not impaired, different assumptions regarding the future performance of our businesses could result in significant impairment losses.

We evaluate the useful lives of our intangible assets, primarily intangible assets associated with the Blue Buffalo, Pillsbury, Totino’s, Progresso, Yoplait, Old El Paso, Yoki, Häagen-Dazs, and Annie’s brands, to determine if they are finite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets.

Our indefinite-lived intangible assets are also tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. Our estimate of the fair value of the brands is based on a discounted cash flow model using inputs including projected revenues from our long-range plan, assumed royalty rates which could be payable if we did not own the brands, and a discount rate. If current expectations for growth rates for sales and margins are not met, or other market factors and macroeconomic conditions that could be affected by the COVID-19 pandemic or otherwise were to change, then our indefinite-lived intangible assets could become significantly impaired. Our Pillsbury and Progresso brands had experienced declining business performance, and we continue to monitor these businesses.

For further information on goodwill and intangible assets, please refer to Note 6 to the Consolidated Financial Statements in Item 8 of this report.

Our failure to successfully integrate acquisitions into our existing operations could adversely affect our financial results.

From time to time, we evaluate potential acquisitions or joint ventures that would further our strategic objectives. Our success depends, in part, upon our ability to integrate acquired and existing operations. If we are unable to successfully integrate acquisitions, our financial results could suffer. Additional potential risks associated with acquisitions include additional debt leverage, the loss of key employees and customers of the acquired business, the assumption of unknown liabilities, the inherent risk associated with entering a geographic area or line of business in which we have no or limited prior experience, failure to achieve anticipated synergies, and the impairment of goodwill or other acquisition-related intangible assets.

ITEM 1B - Unresolved Staff Comments

None.

ITEM 2 - Properties

We own our principal executive offices and main research facilities, which are located in the Minneapolis, Minnesota metropolitan area. We operate numerous manufacturing facilities and maintain many sales and administrative offices, warehouses, and distribution centers around the world.

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As of May 31, 2020, we operated 47 facilities for the production of a wide variety of food products. Of these facilities, 24 are located in the United States (1 of which is leased), 4 in the Greater China region, 1 in the Asia/Middle East/Africa Region, 2 in Canada (1 of which is leased), 8 in Europe/Australia, and 8 in Latin America and Mexico. The following is a list of the locations of our principal production facilities, which primarily support the segment noted:

We operate numerous grain elevators in the United States in support of our domestic manufacturing activities. We also utilize approximately 15 million square feet of warehouse and distribution space, nearly all of which is leased, that primarily supports our North America Retail segment. We own and lease a number of dedicated sales and administrative offices around the world, totaling approximately 3 million square feet. We have additional warehouse, distribution, and office space in our plant locations.

As part of our Häagen-Dazs business in our Europe & Australia and Asia & Latin America segments, we operate 500 (all leased) and franchise 358 branded ice cream parlors in various countries around the world, all outside of the United States and Canada.

ITEM 3 - Legal Proceedings

We are the subject of various pending or threatened legal actions in the ordinary course of our business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. In our opinion, there were no claims or litigation pending as of May 31, 2020, that were reasonably likely to have a material adverse effect on our consolidated financial position or results of operations. See the information contained under the section entitled “Environmental Matters” in Item 1 of this report for a discussion of environmental matters in which we are involved.

ITEM 4 - Mine Safety Disclosures

None.

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PART II

ITEM 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the New York Stock Exchange under the symbol “GIS.” On June 15, 2020, there were approximately 27,000 record holders of our common stock.

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ITEM 6 - Selected Financial Data

The following table sets forth selected financial data for each of the fiscal years in the five-year period ended May 31, 2020:

(a)Fiscal 2020 was a 53-week year; all other fiscal years were 52 weeks.

(b)See “Glossary” in Item 8 of this report for definition.

(c)See “Non-GAAP Measures” in Item 7 of this report for our discussion of this measure not defined by generally accepted accounting principles.

(d)In fiscal 2019, we retrospectively adopted new accounting requirements related to the presentation of net periodic defined benefit pension expense, net periodic postretirement benefit expense, and net periodic postemployment benefit expense. Please see Note 2 to the Consolidated Financial Statements in Item 8 of this report.

(e)In fiscal 2018, we adopted new requirements for the accounting and presentation of stock-based payments. This resulted in the reclassification of realized windfall tax benefits and employee tax withholdings in our Consolidated Statements of Cash Flows. Please see Note 2 to the Consolidated Financial Statements in Item 8 of this report.

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ITEM 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

We are a global packaged 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 effective merchandising. We believe our brand-building strategy is the key to winning and sustaining leading share positions in markets around the globe.

Our fundamental financial goal is to generate superior returns for our shareholders over the long term. We believe achieving that goal requires us to generate a consistent balance of net sales growth, margin expansion, cash conversion, and cash return to shareholders over time.

Fiscal 2020 was a year of significant challenge and change in the external environment, and we adapted and executed to deliver strong financial results while remaining focused on the health and safety of our employees and our company purpose of making food the world loves. Prior to the outbreak of the COVID-19 pandemic, we expected to meet or exceed each of our key fiscal 2020 financial targets. The virus outbreak had a profound impact on consumer demand across our major markets, including driving an unprecedented increase in demand for food at home and a corresponding decrease in demand for away-from-home food, resulting from efforts to reduce virus transmission. After the onset of the pandemic, elevated at-home food demand accelerated net sales growth in the fourth quarter in the North America Retail segment, where a significant share of net sales comes from categories that were most impacted by at-home eating, including meals, baking, and cereal. The impact of elevated at-home demand was less pronounced in the Europe & Australia segment, reflecting its lower proportion of net sales in those categories. The Pet segment experienced increased demand early in the fourth quarter from stock-up purchasing, which partially unwound by the end of the quarter. Lower away-from-home food demand reduced growth for the Convenience Stores & Foodservice and Asia & Latin America segments. Consequently, our full-year results significantly exceeded our initial annual targets for organic net sales growth, constant-currency growth in adjusted operating profit and adjusted diluted earnings per share (EPS), and free cash flow conversion.

We delivered on the three key priorities we outlined at the beginning of fiscal 2020:

First, we accelerated our organic net sales growth rate compared to our fiscal 2019 performance, driven by strong execution to meet elevated demand during the COVID-19 pandemic, healthy levels of innovation, and a significant increase in capabilities and brand-building investment. We experienced robust growth in organic net sales in North America Retail, aided by our ability to meet the pandemic-related increase in demand for meals and baking categories during the fourth quarter, as well as consistently strong results in U.S. cereal and important improvements in U.S. snack bars and U.S. yogurt throughout the year. We exceeded our organic net sales growth goal for our Pet segment, driven by a successful expansion of BLUE into additional customer outlets and a significant increase in household penetration for the brand. Organic net sales results in our Convenience Stores & Foodservice, Europe & Australia, and Asia & Latin America segments were below fiscal 2019 levels, due to a slow start to the year in each of those segments, as well as the pandemic-related headwinds impacting Convenience Stores & Foodservice and Asia & Latin America in the second half of the year.

Second, we maintained our strong adjusted operating profit margins. The combination of our continued strong levels of Holistic Margin Management (HMM) savings, volume growth, and positive net price realization and mix offset input cost inflation and increased investments in brand building and capabilities, resulting in significant growth in constant-currency adjusted operating profit and adjusted diluted EPS.

Third, we reduced our leverage. Our continued cash discipline delivered a significant reduction in core working capital and strong free cash flow conversion, resulting in reduced debt and an important decrease in our leverage ratio.

Our consolidated net sales for fiscal 2020 rose 5 percent to $17.6 billion. On an organic basis, net sales increased 4 percent compared to year-ago levels. Operating profit of $3.0 billion increased 17 percent. Adjusted operating profit of $3.0 billion increased 7 percent on a constant-currency basis. Diluted EPS of $3.56 was up 23 percent compared to fiscal 2019 results. Adjusted diluted EPS of $3.61 increased 12 percent on a constant-currency basis (See the “Non-GAAP Measures” section below for a description of our use of measures not defined by generally accepted accounting principles (GAAP)).

Net cash provided by operations totaled $3.7 billion in fiscal 2020 representing a conversion rate of 166 percent of net earnings, including earnings attributable to redeemable and noncontrolling interests. This cash generation supported capital investments totaling $461 million, and our resulting free cash flow was $3.2 billion at a conversion rate of 143 percent of adjusted net earnings, including earnings attributable to redeemable and noncontrolling interests. We also returned cash to shareholders through dividends totaling $1.2 billion and reduced total debt outstanding by $1.0 billion. Our ratio of net debt-to-operating cash flow was 3.2 in fiscal 2020, and our

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net debt-to-adjusted earnings before net interest, income taxes, depreciation and amortization (net debt-to-adjusted EBITDA) ratio was 3.2, which was favorable to our fiscal 2020 target of 3.5 (See the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).

A detailed review of our fiscal 2020 performance compared to fiscal 2019 appears below in the section titled “Fiscal 2020 Consolidated Results of Operations.” A detailed review of our fiscal 2019 performance compared to our fiscal 2018 performance is set forth in Part II, Item 7 of our Form 10-K for the fiscal year ended May 26, 2019 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Fiscal 2019 Results of Consolidated Operations,” which is incorporated herein by reference.

We have outlined three key priorities for fiscal 2021 that we expect will allow us to generate competitive performance while continuing to advance our long-term goals:

1)Compete effectively, everywhere we play, leading to increased brand penetration, competitive service levels, strengthened customer partnerships, and market share gains in our key categories. We expect net sales growth in fiscal 2021 will be positively impacted by superior execution as well as elevated at-home food demand, relative to the pre-pandemic period. We anticipate headwinds to fiscal 2021 net sales growth from comparisons against the 53rd week, the extra month of Pet segment results, and the pandemic-related increase in demand in the fourth quarter of fiscal 2020. Additionally, fiscal 2021 net sales growth may be negatively impacted by a potential reduction in consumers’ at-home food inventory, which has been elevated during the pandemic.

2)Drive efficiency to fuel investment. We anticipate that the combination of benefits from our HMM initiatives and volume leverage and headwinds from input cost inflation, increased investment in our brands and capabilities, higher costs to service elevated demand, and higher ongoing health and safety-related expenses will result in an adjusted operating profit margin that is approximately in line with fiscal 2020 levels.

3)Reduce leverage to increase financial flexibility. We expect to make further progress in fiscal 2021 in reducing our net debt-to-adjusted EBITDA ratio.

We expect the largest factor impacting our fiscal 2021 performance will be relative balance of at-home versus away-from-home consumer food demand. This balance will be determined by factors such as consumers’ ability and willingness to eat in restaurants, the proportion of people working from home, the reopening of schools, and changes in consumers’ income levels. While the COVID-19 pandemic has significantly influenced each of these factors in recent months, the magnitude and duration of its future impact remains highly uncertain.

We expect consumer concerns about COVID-19 virus transmission and the recession to drive elevated demand for food at home, relative to pre-pandemic levels. We are tracking the level of virus control, the possibility of a second-wave outbreak, the availability of a vaccine, GDP growth, unemployment rates, consumer confidence, and wage growth, among other factors, to assess the likely magnitude and duration of elevated at-home food demand.

Certain terms used throughout this report are defined in a glossary in Item 8 of this report.

FISCAL 2020 CONSOLIDATED RESULTS OF OPERATIONS

Fiscal 2020 had 53 weeks compared to 52 weeks in fiscal 2019. Fiscal 2020 includes 13 months of Pet operating segment results as we changed the Pet operating segment’s reporting period from an April fiscal year end to a May fiscal year end to match our fiscal calendar. Fiscal 2019 included 12 months of Pet operating segment results.

In fiscal 2020, net sales increased 5 percent compared to last year and organic net sales increased 4 percent compared to last year. Operating profit margin of 16.8 percent was up 190 basis points from year-ago levels primarily driven by favorable net price realization and mix in fiscal 2020, impairment charges recorded for certain intangible and manufacturing assets in fiscal 2019, and the impact of the 53^rd week in fiscal 2020, partially offset by higher selling, general, and administrative (SG&A) expenses in fiscal 2020. Adjusted operating profit margin increased 40 basis points to 17.3 percent, primarily driven by favorable net price realization and mix in fiscal 2020, the impact of the 53^rd week in fiscal 2020, and the purchase accounting inventory adjustment in fiscal 2019 related to our acquisition of Blue Buffalo Products, Inc. (Blue Buffalo), partially offset by higher SG&A expenses in fiscal 2020. Diluted earnings per share of $3.56 increased 23 percent compared to fiscal 2019. Adjusted diluted earnings per share of $3.61 increased 12 percent on a constant-currency basis (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).

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A summary of our consolidated financial results for fiscal 2020 follows:

Consolidated net sales were as follows:

The 5 percent increase in net sales in fiscal 2020 reflects higher contributions from volume growth and favorable net price realization and mix, partially offset by unfavorable foreign currency exchange. The 53^rd week in fiscal 2020 contributed 2 percentage points of net sales growth, reflecting 2 percentage points of growth from volume. The fiscal 2020 increase in net sales growth includes approximately 3 points of net sales growth due to the impact of the COVID-19 pandemic.

Components of organic net sales growth are shown in the following table:

Organic net sales in fiscal 2020 increased 4 percent compared to fiscal 2019, driven by increased contributions from organic volume growth and favorable organic net price realization and mix. The increase in organic net sales growth includes approximately 3 points of organic net sales growth due to the impact of the COVID-19 pandemic.

The disclosed impacts attributable to the COVID-19 pandemic on net sales and organic net sales were calculated based upon net sales in excess of our expectations prior to the net increase in demand resulting from the COVID-19 pandemic. The impacts disclosed are approximate and reflect our best estimate of the impact of the COVID-19 pandemic.

Cost of sales increased $388 million in fiscal 2020 to $11,497 million. The increase was primarily driven by a $397 million increase due to higher volume. In fiscal 2020, we recorded a $19 million charge related to a product recall in our international Green Giant business, an $18 million increase in certain compensation and benefits expenses, and a $1 million increase attributable to product rate and mix. In fiscal 2019, we recorded a $53 million charge related to the fair value adjustment of inventory acquired in the Blue Buffalo acquisition. We recorded a $25 million net increase in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories in fiscal 2020 compared to a net increase of $36 million in fiscal 2019 (please see Note 8 to the Consolidated Financial Statements in Item 8 of this report for additional information). In fiscal 2020, we recorded $26 million of

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restructuring charges in cost of sales compared to $10 million in fiscal 2019. We also recorded $2 million of restructuring initiative project-related costs in cost of sales in fiscal 2020 compared to $1 million in fiscal 2019 (please see Note 4 to the Consolidated Financial Statements in Item 8 of this report for additional information).

Gross margin increased 6 percent in fiscal 2020 versus fiscal 2019. Gross margin as a percent of net sales increased 70 basis points to 34.8 percent compared to fiscal 2019.

SG&A expenses increased $216 million to $3,152 million in fiscal 2020 compared to fiscal 2019. The increase in SG&A expenses primarily reflects increased compensation and benefits expenses and media and advertising expenses, partially offset by lower other consumer-related expenses. SG&A expenses as a percent of net sales in fiscal 2020 increased 50 basis points compared to fiscal 2019.

Divestitures loss totaled $30 million in fiscal 2019 from the sale of our La Salteña fresh pasta and refrigerated dough business in Argentina and the sale of our yogurt business in China.

Restructuring, impairment, and other exit costs totaled $24 million in fiscal 2020 compared to $275 million in fiscal 2019. We did not undertake any new restructuring actions in fiscal 2020. In fiscal 2019, we recorded $193 million of impairment charges related to certain brand intangible assets and a $15 million charge related to the impairment of certain manufacturing assets in our North America Retail and Asia & Latin America segments. In fiscal 2019, we also recorded $80 million of restructuring charges related to actions to drive efficiencies in targeted areas of our global supply chain. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report for additional information.

Benefit plan non-service income totaled $113 million in fiscal 2020 compared to $88 million in fiscal 2019, primarily reflecting lower interest costs (please see Note 2 to the Consolidated Financial Statements in Item 8 of this report for additional information).

Interest, net for fiscal 2020 totaled $466 million, $56 million lower than fiscal 2019, primarily driven by lower average debt levels.

Our effective tax rate for fiscal 2020 was 18.5 percent compared to 17.7 percent in fiscal 2019. The 0.8 percentage point increase was primarily due to certain nonrecurring discrete tax benefits in fiscal 2019, partially offset by the benefit from the reorganization of certain wholly-owned subsidiaries and favorable changes in earnings mix by jurisdiction in fiscal 2020. Our adjusted effective tax rate was 20.7 percent in fiscal 2020 compared to 21.8 percent in fiscal 2019 (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).

After-tax earnings from joint ventures increased 27 percent to $91 million in fiscal 2020 compared to fiscal 2019, primarily driven by higher net sales at CPW partially reflecting the impact of the COVID-19 pandemic in the month of March and our share of lower after-tax restructuring charges compared to fiscal 2019. On a constant-currency basis, after-tax earnings from joint ventures increased 31 percent (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The components of our joint ventures’ net sales growth are shown in the following table:

Average diluted shares outstanding increased by 8 million in fiscal 2020 from fiscal 2019 due to option exercises.

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RESULTS OF SEGMENT OPERATIONS

Our businesses are organized into five operating segments: North America Retail; Convenience Stores & Foodservice; Europe & Australia; Asia & Latin America; and Pet. Fiscal 2020 includes 13 months of Pet operating segment results as we changed the Pet operating segment’s reporting period from an April fiscal year end to a May fiscal year end to match our fiscal calendar. Fiscal 2019 included 12 months of results.

The following tables provide the dollar amount and percentage of net sales and operating profit from each segment for fiscal 2020 and fiscal 2019:

Segment operating profit as reviewed by our executive management excludes unallocated corporate items, net gain/loss on divestitures, and restructuring, impairment, and other exit costs that are centrally managed.

NORTH AMERICA RETAIL SEGMENT

Our North America Retail operating segment reflects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains, and e-commerce grocery providers. 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, snack bars, fruit snacks, savory snacks, and a wide variety of organic products including ready-to-eat cereal, frozen and shelf-stable vegetables, meal kits, fruit snacks, snack bars, and refrigerated yogurt.

North America Retail net sales were as follows:

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

The 8 percent increase in North America Retail net sales for fiscal 2020 was primarily driven by the impact of the COVID-19 pandemic. The increase in net sales includes an increase in contributions from volume growth, including 2 percentage points resulting from the 53rd week, partially offset by unfavorable net price realization and mix.

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The components of North America Retail organic net sales growth are shown in the following table:

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

North America Retail organic net sales increased 6 percent in fiscal 2020 compared to fiscal 2019, primarily driven by the impact of the COVID-19 pandemic. The increase in organic net sales includes an increase in contributions from organic volume growth, partially offset by unfavorable organic net price realization and mix.

Net sales for our North America Retail operating units are shown in the following table:

(a) On a constant currency basis, Canada operating unit net sales increased 5 percent in fiscal 2020. See the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP.

Segment operating profit increased 15 percent to $2,627 million in fiscal 2020, compared to $2,277 million in fiscal 2019, primarily driven by higher contributions from volume growth and the impact of the 53^rd week in fiscal 2020. Segment operating profit increased 15 percent on a constant-currency basis in fiscal 2020 compared to fiscal 2019 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).

EUROPE & AUSTRALIA SEGMENT

Our Europe & Australia operating segment reflects retail and foodservice businesses in the greater Europe and Australia regions. Our product categories include refrigerated yogurt, meal kits, snack bars, super-premium ice cream, refrigerated and frozen dough products, shelf stable vegetables, and dessert and baking mixes. Revenues from franchise fees are reported in the region or country where the franchisee is located.

Europe & Australia net sales were as follows:

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

The 3 percent decrease in Europe & Australia net sales in fiscal 2020 was driven by unfavorable foreign currency exchange, partially offset by favorable net price realization and mix. Fiscal 2020 net sales includes growth from the impact of the COVID-19 pandemic.

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The components of Europe & Australia organic net sales growth are shown in the following table:

Note: Table may not foot due to rounding

(a) Measured in tons based on the stated weight of our product shipments.

The 1 percent decrease in Europe & Australia organic net sales growth in fiscal 2020 was driven by a decrease in contributions from organic volume growth, partially offset by favorable organic net price realization and mix. Fiscal 2020 organic net sales includes growth from the impact of the COVID-19 pandemic.

Segment operating profit decreased 8 percent to $114 million in fiscal 2020 compared to fiscal 2019, primarily driven by higher input costs and lower contributions from volume growth, partially offset by favorable net price realization and mix. Segment operating profit decreased 3 percent on a constant-currency basis in fiscal 2020 compared to fiscal 2019 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).

CONVENIENCE STORES & FOODSERVICE SEGMENT

Our major product categories in our Convenience Stores & Foodservice operating segment are ready-to-eat cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products, baking mixes, and bakery flour. Many products we sell are branded to the consumer and nearly all are branded to our customers. We sell to distributors and operators in many customer channels including foodservice, convenience stores, vending, and supermarket bakeries in the United States.

Convenience Stores & Foodservice net sales were as follows:

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

Convenience Stores & Foodservice net sales decreased 8 percent in fiscal 2020 primarily driven by the impact of the COVID-19 pandemic on away-from-home channels. The decrease in net sales includes a decrease in contributions from volume growth and unfavorable net price realization and mix.

The components of Convenience Stores & Foodservice organic net sales growth are shown in the following table:

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

The 9 percent decrease in Convenience Stores & Foodservice organic net sales growth in fiscal 2020 was primarily driven by the impact of the COVID-19 pandemic. The decrease in organic net sales growth includes a decrease in contributions from organic volume growth and unfavorable organic net price realization and mix.

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Segment operating profit decreased 20 percent to $337 million in fiscal 2020, compared to $420 million in fiscal 2019, primarily driven by lower contributions from volume growth and unfavorable net price realization and mix.

PET SEGMENT

Our Pet operating segment includes pet food products sold primarily in the United States in national pet superstore chains, e-commerce retailers, grocery stores, regional pet store chains, mass merchandisers, and veterinary clinics and hospitals. Our product categories include dog and cat food (dry foods, wet foods, and treats) made with whole meats, fruits, and vegetables and other high-quality natural ingredients. Our tailored pet product offerings address specific dietary, lifestyle, and life-stage needs and span different product types, diet types, breed sizes for dogs, lifestages, flavors, product functions and textures, and cuts for wet foods.

Fiscal 2020 includes 13 months of Pet operating segment results as we changed the Pet operating segment’s reporting period from an April fiscal year end to a May fiscal year end to match our fiscal calendar. Fiscal 2019 included 12 months of results.

Pet net sales were as follows:

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

Pet net sales increased 18 percent in fiscal 2020 compared to fiscal 2019, driven by an increase in contributions from volume growth, including the impact of an extra month in the period, and favorable net price realization and mix. Fiscal 2020 net sales includes growth from the impact of the COVID-19 pandemic.

The components of Pet organic net sales growth are shown in the following table:

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

The 18 percent increase in Pet organic net sales growth in fiscal 2020 was driven by an increase in contributions from organic volume growth, including the impact of an extra month in the period, and favorable organic net price realization and mix. Fiscal 2020 organic net sales includes growth from the impact of the COVID-19 pandemic.

Pet operating profit increased 46 percent to $391 million in fiscal 2020, compared to $268 million in fiscal 2019, primarily driven by a $53 million purchase accounting adjustment related to inventory acquired in fiscal 2019, an increase in contributions from volume growth, favorable net price realization and mix, and the impact of an extra month in the period, partially offset by higher SG&A expenses.

ASIA & LATIN AMERICA SEGMENT

Our Asia & Latin America operating segment consists of retail and foodservice businesses in the greater Asia and South America regions. Our product categories include super-premium ice cream and frozen desserts, meal kits, dessert and baking mixes, snack bars, salty snacks, refrigerated and frozen dough products, and wellness beverages. We also sell super-premium ice cream and frozen desserts directly to consumers through owned retail shops. Our Asia & Latin America 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 or franchisee is located.

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Asia & Latin America net sales were as follows:

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

Asia & Latin America net sales decreased 8 percent in fiscal 2020 compared to fiscal 2019, primarily driven by the impact of the COVID-19 pandemic. The decrease in net sales includes unfavorable foreign currency exchange, a decrease in contributions from volume growth, and unfavorable net price realization and mix.

The components of Asia & Latin America organic net sales growth are shown in the following table:

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

(b) Impact of the divestiture of our La Salteña business in Argentina and our Yoplait business in China.

The 2 percent decrease in Asia & Latin America organic net sales in fiscal 2020 was primarily driven by the impact of the COVID-19 pandemic. The decrease in organic net sales growth includes unfavorable organic net price realization and mix and a decrease in contributions from organic volume growth.

Segment operating profit decreased 74 percent to $19 million in fiscal 2020, compared to $72 million in fiscal 2019, primarily driven by an increase in input costs and lower contributions from volume growth. Segment operating profit decreased 73 percent on a constant-currency basis in fiscal 2020 compared to fiscal 2019 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).

UNALLOCATED CORPORATE ITEMS

Unallocated corporate items include corporate overhead expenses, variances to planned domestic employee benefits and incentives, contributions to the General Mills Foundation, asset and liability remeasurement impact of hyperinflationary economies, restructuring initiative project-related costs, and other items that are not part of our measurement of segment operating performance. This 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 8 to the Consolidated Financial Statements in Item 8 of this report.

In fiscal 2020, unallocated corporate expense increased $169 million to $509 million compared to $340 million last year, primarily driven by compensation and benefits expenses. In fiscal 2020, we recorded a $25 million net increase in expense related to mark-to-market valuation of certain commodity positions and grain inventories compared to a $36 million net increase in expense in the prior year. In addition, we recorded $26 million of restructuring charges, and $2 million of restructuring initiative project-related costs in cost of sales in fiscal 2020, compared to $10 million of restructuring charges and $1 million of restructuring initiative project-related costs in cost of sales in fiscal 2019. We also recorded a $19 million charge related to a product recall in our international Green Giant business in fiscal 2020. In fiscal 2020, we recorded $8 million of net losses related to certain investment valuation adjustments and the loss on sale of certain corporate investments, compared to $23 million of gains in fiscal 2019. In fiscal 2019, we recorded a $16 million gain from a legal recovery related to our Yoplait SAS subsidiary and $26 million of integration costs related to our acquisition of Blue Buffalo. In addition, we recorded a $3 million loss related to the impact of hyperinflationary accounting for our Argentina subsidiary in fiscal 2019.

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IMPACT OF INFLATION

We experienced input cost inflation of 4 percent in fiscal 2020 and 4 percent in fiscal 2019, primarily on commodity inputs. We expect input cost inflation of approximately 3 percent in fiscal 2021. We attempt to minimize the effects of inflation through HMM, planning, and operating practices. Our risk management practices are discussed in Item 7A of this report.

LIQUIDITY

The primary source of our liquidity is cash flow from operations. Over the most recent two-year period, our operations have generated $6.5 billion in cash. A substantial portion of this operating cash flow has been returned to shareholders through 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, and occasionally issue shares of common stock, to finance significant acquisitions. Our sources of liquidity were not materially impacted from the COVID-19 pandemic.

As of May 31, 2020, we had $566 million of cash and cash equivalents held in foreign jurisdictions. As a result of the Tax Cuts and Jobs Act (TCJA), the historic undistributed earnings of our foreign subsidiaries were taxed in the U.S. via the one-time repatriation tax in fiscal 2018. We have re-evaluated our assertion and have concluded that although earnings prior to fiscal 2018 will remain permanently reinvested, we will no longer make a permanent reinvestment assertion beginning with our fiscal 2018 earnings. As part of the accounting for the TCJA, we recorded local country withholding taxes related to certain entities from which we began repatriating undistributed earnings and will continue to record local country withholding taxes on all future earnings. As a result of the transition tax, we may repatriate our cash and cash equivalents held by our foreign subsidiaries without such funds being subject to further U.S. income tax liability.

Cash Flows from Operations

During fiscal 2020, cash provided by operations was $3,676 million compared to $2,807 million in the same period last year. The $869 million increase was primarily driven by an $801 million change in current assets and liabilities and a $425 million increase in net earnings, partially offset by a $192 million change in non-cash restructuring, impairment, and other exit costs and a $123 million change in deferred income taxes. The $801 million change in current assets and liabilities was primarily driven by a $233 million change in other current liabilities, primarily driven by changes in income taxes payable, trade and advertising accruals, and incentive accruals, a $230 million change in accounts payable as a result of increased spending on raw materials and packaging as well as the continued extension of payment terms, and a $208 million change in prepaid and other current assets, primarily driven by the timing of certain tax payments and receipts.

We strive to grow core working capital at or below the rate of growth in our net sales. For fiscal 2020, core working capital decreased $591 million, compared to a net sales increase of 5 percent, primarily driven by the increase in accounts payable and lower inventory balances. In fiscal 2019, core working capital decreased $195 million, compared to a net sales increase of 7 percent.

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Cash Flows from Investing Activities

In fiscal 2020, we used $486 million of cash through investing activities compared to $556 million in fiscal 2019. We invested $461 million in land, buildings, and equipment in fiscal 2020, $77 million less than fiscal 2019.

We expect capital expenditures to be approximately 3.5 percent of reported net sales in fiscal 2021. These expenditures will fund initiatives that are expected to fuel growth, support innovative products, and continue HMM initiatives throughout the supply chain.

Cash Flows from Financing Activities

Financing activities used $1.9 billion of cash in fiscal 2020 compared to $2.2 billion in fiscal 2019. We had $917 million of net debt repayments in fiscal 2020 compared to $1.2 billion of net debt repayments in fiscal 2019. For more information on our debt issuances and payments, please refer to Note 9 to the Consolidated Financial Statements in Item 8 of this report.

During fiscal 2020, we received $263 million of net proceeds from common stock issued on exercised options compared to $241 million in fiscal 2019.

Share repurchases in fiscal 2020 and 2019 were insignificant.

Dividends paid in fiscal 2020 totaled $1,196 million, or $1.96 per share, consistent with fiscal 2019.

Selected Cash Flows from Joint Ventures

Selected cash flows from our joint ventures are set forth in the following table:

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CAPITAL RESOURCES

Total capital consisted of the following:

The following table details the fee-paid committed and uncommitted credit lines we had available as of May 31, 2020:

To ensure availability of funds, we maintain bank credit lines and have commercial paper programs available to us in the United States and Europe. In response to uncertainty surrounding the availability and cost of commercial paper borrowings as a result of the COVID-19 pandemic, we issued $750 million of fixed-rate notes in April 2020 and reduced our borrowings under commercial paper programs. As the COVID-19 pandemic evolves, we will continue to evaluate its impact to our sources of liquidity. We also have uncommitted and asset-backed credit lines that support our foreign operations.

Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of May 31, 2020, we were in compliance with all of these covenants.

We have $2,332 million of long-term debt maturing in the next 12 months that is classified as current, including $100 million of 6.61 percent medium-term notes due for remarketing in October 2020, €500 million of 2.1 percent notes due November 2020, €200 million of 0.0 percent notes due November 2020, $4 million of floating-rate medium term notes due for remarketing in November 2020, $850 million of floating-rate notes due April 2021, and $600 million of 3.2 percent notes due April 2021. We believe that cash flows from operations, together with available short- and long-term debt financing, will be adequate to meet our liquidity and capital needs for at least the next 12 months.

As of May 31, 2020, our total debt, including the impact of derivative instruments designated as hedges, was 87 percent in fixed-rate and 13 percent in floating-rate instruments, compared to 74 percent in fixed-rate and 26 percent in floating-rate instruments on May 26, 2019.

Our net debt to operating cash flow ratio declined to 3.2 in fiscal 2020 from 5.0 in fiscal 2019, primarily driven by an increase in cash provided by operations. Our net debt-to-adjusted EBITDA ratio declined to 3.2 in fiscal 2020 from 3.9 in fiscal 2019, consistent with our plans to reduce our leverage following our acquisition of Blue Buffalo (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).

We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl. Sodiaal International (Sodiaal) holds the remaining interests in each of these entities. We consolidate these entities into our consolidated financial statements. We record Sodiaal’s 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl as noncontrolling interests, and its 49 percent interest in Yoplait SAS as a redeemable interest on our Consolidated Balance Sheets. These 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 31, 2020, the redemption value of the redeemable interest was $545 million which approximates its fair value.

During fiscal 2019, Sodiaal invested $56 million in Yoplait SAS.

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The third-party holder of the General Mills Cereals, LLC (GMC) Class A Interests receives quarterly preferred distributions from available net income based on the application of a floating 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, 2018, the floating preferred return rate on GMC’s Class A Interests was reset to the sum of three-month LIBOR plus 142.5 basis points. The preferred 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 31, 2020, we have issued guarantees and comfort letters of $130 million for the debt and other obligations of non-consolidated affiliates, mainly CPW. In addition, off-balance sheet arrangements were not material as of May 31, 2020.

As of May 31, 2020, we invested in three variable interest entities (VIEs). None of our VIEs are material to our results of operations, financial condition, or liquidity as of and for the fiscal year ended May 31, 2020.

Our defined benefit 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 contributions in fiscal 2021.

The following table summarizes our future estimated cash payments under existing contractual obligations, including payments due by period:

(a)Amounts represent the expected cash payments of our long-term debt and do not include $0.2 million for finance leases or $58.4 million for net unamortized debt issuance costs, premiums and discounts, and fair value adjustments.

(b)See Note 7 to the Consolidated Financial Statements in Item 8 of this report for more information on our lease arrangements.

(c)The majority of the purchase obligations represent commitments for raw material and packaging to be utilized in the normal course of business and for consumer marketing spending commitments that support our brands. For purposes of this table, arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty and with short notice (usually 30 days). Any amounts reflected on the Consolidated Balance Sheets as accounts payable and accrued liabilities are excluded from the table above.

(d)The fair value of our foreign exchange, equity, commodity, and grain derivative contracts with a payable position to the counterparty was $43.1 million as of May 31, 2020, based on fair market values as of that date. Future changes in market values will impact the amount of cash ultimately paid or received to settle those instruments in the future. Other long-term obligations mainly consist of liabilities for accrued compensation and benefits, including the underfunded status of certain of our defined benefit pension, other postretirement benefit, and postemployment benefit plans, and miscellaneous liabilities. We expect to pay approximately $24 million of benefits from our unfunded postemployment benefit plans and approximately $21 million of deferred compensation in fiscal 2021. We are unable to reliably estimate the amount of these payments beyond fiscal 2021. As of May 31, 2020, our total liability for uncertain tax positions and accrued interest and penalties was $175.8 million.

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SIGNIFICANT ACCOUNTING ESTIMATES

For a complete description of our significant accounting policies, please see Note 2 to the Consolidated Financial Statements in Item 8 of this report. Our significant accounting estimates are those that have a meaningful impact on the reporting of our financial condition and results of operations. These estimates include our accounting for revenue recognition, valuation of long-lived assets, intangible assets, redeemable interest, stock-based compensation, income taxes, and defined benefit pension, other postretirement benefit, and postemployment benefit plans.

Considerations related to the COVID-19 pandemic

The impact that the recent COVID-19 pandemic will have on our consolidated results of operations is uncertain. We saw increased orders from retail customers across all geographies in response to increased consumer demand for food at home. We also experienced a COVID-19-related decrease in consumer traffic in away-from-home food outlets during the third and fourth quarters of fiscal 2020. Near-term elevated retail customer orders may unwind in the coming months, and we are unable to predict the nature and timing of when that impact may occur, if at all. We have considered the potential impacts of the COVID-19 pandemic in our significant accounting estimates as of May 31, 2020, and will continue to evaluate the nature and extent of the impact to our business and consolidated results of operations.

Revenue Recognition

Our revenues are reported net of variable consideration and consideration payable to our customers, including trade promotion, consumer coupon redemption and other reductions to the transaction price, including estimated allowances for returns, unsalable product, and prompt pay discounts. Trade promotions are recorded using significant judgment of estimated participation and performance levels for offered programs at the time of sale. Differences between the estimated and actual reduction to the transaction price is recognized as a change in estimate in a subsequent period. Our accrued trade and coupon promotion liabilities were $471 million as of May 31, 2020, and $410 million as of May 26, 2019. Because these amounts are significant, if our estimates are inaccurate we would have to make adjustments in subsequent periods that could have a significant effect 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 flows to review for impairment whenever 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 flows or independent appraisals, as appropriate.

Intangible Assets

Goodwill and other indefinite-lived intangible assets are not subject to amortization and are tested for impairment annually and whenever events 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 flow model. We use inputs from our long-range planning process to determine growth rates for sales and profits. We also make estimates of discount rates, perpetuity growth assumptions, market comparables, and other factors.

We evaluate the useful lives of our other intangible assets, mainly brands, to determine if they are finite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets. Intangible assets that are deemed to have finite 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 flow 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 31, 2020, we had $20 billion of goodwill and indefinite-lived intangible assets. We assessed our goodwill and brand intangible assets for potential impairment indicators using quantitative and qualitative factors, including the estimated impacts of the COVID-19 pandemic, as of May 31, 2020, and concluded that no impairment indicators were present as of that date. While we currently believe that the fair value of each intangible exceeds its carrying value and that those intangibles will contribute indefinitely to our cash flows, materially different assumptions regarding future performance of our businesses or a different weighted-average cost of capital could result in material impairment losses and amortization expense. We performed our fiscal 2020 assessment of our intangible assets as of the first day of the second quarter of fiscal 2020, and we determined there was no impairment of our intangible assets as their related fair values were substantially in excess of the carrying values, except for the Europe & Australia reporting unit and the Progresso brand intangible asset.

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The excess fair value as of the fiscal 2020 test date of the Europe & Australia reporting unit and the Progresso brand intangible asset were as follows:

In addition, while having significant coverage as of our fiscal 2020 assessment date, the Pillsbury brand intangible asset had risk of decreasing coverage. We will continue to monitor our businesses for potential impairment.

Redeemable Interest

The significant assumptions used to estimate the redemption value of the redeemable interest include projected revenue growth and profitability from our long-range plan, capital spending, depreciation and taxes, foreign currency exchange rates, and a discount rate. As of May 31, 2020, the redemption value of the redeemable interest was $545 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 financial statements. Annually, we make predictive assumptions regarding future stock price volatility, employee exercise behavior, dividend yield, and the forfeiture rate. For more information on these assumptions, please see Note 12 to the Consolidated Financial Statements in Item 8 of this report.

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