GENERAL MILLS INC - Quarter Report: 2021 November (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 28, 2021

☐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

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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:

________________

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 ☑ No ☐

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  ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Number of shares of Common Stock outstanding as of December 14, 2021: 603,206,700 (excluding 151,406,628 shares held in the treasury).

General Mills, Inc.

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GENERAL MILLS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Background

The accompanying Consolidated Financial Statements of General Mills, Inc. (we, us, our, General Mills, or the Company) have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature, including the elimination of all intercompany transactions and any noncontrolling and redeemable interests’ share of those transactions. Operating results for the quarter ended November 28, 2021, are not necessarily indicative of the results that may be expected for the fiscal year ending May 29, 2022.

These statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended May 30, 2021. The accounting policies used in preparing these Consolidated Financial Statements are the same as those described in Note 2 to the Consolidated Financial Statements in that Form 10-K.

Certain terms used throughout this report are defined in the “Glossary” section below.

(2) Acquisition and Divestitures

During the second quarter of fiscal 2022, we entered into definitive agreements to sell our European dough businesses. The transactions are expected to close by the end of fiscal 2022, subject to appropriate labor consultations, regulatory approvals, and other customary closing conditions. The associated assets and liabilities have an immaterial impact on the presentation of our Consolidated Balance Sheets as of November 28, 2021.

During the first quarter of fiscal 2022, we acquired the Tyson Foods’ pet treats business for $1.2 billion in cash. We financed the transaction with a combination of cash on hand and short-term debt. We consolidated the Tyson Foods’ pet treats business into our Consolidated Balance Sheets and recorded goodwill of $759.4 million, indefinite-lived intangible assets for the Nudges, Top Chews and True Chews brands totaling $330.0 million in aggregate, and a finite-lived customer relationship asset of $40.0 million. The goodwill is included in the Pet reporting unit and is deductible for tax purposes. The pro forma effects of this acquisition were not material. The consolidated results of the Tyson Foods’ pet treat business are reported in our Pet operating segment on a one-month lag. Accordingly, our Consolidated Statements of Earnings include four months of operating results for the acquired business for the six-month period ended November 28, 2021.

During the first quarter of fiscal 2022, we entered into a definitive agreement to sell our 51 percent controlling interest in Yoplait SAS, and our 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl to Sodiaal International (Sodiaal) in exchange for full ownership of the Canadian Yoplait business, a reduced royalty rate for the use of Yoplait and Liberté brands in the United States and Canada, and cash. The transaction closed subsequent to the end of the second quarter of fiscal 2022. We expect to record a pre-tax gain on the sale of this business during the third quarter of fiscal 2022. We have classified all Yoplait SAS, Yoplait Marques SNC and Liberté Marques Sàrl assets and liabilities as held for sale in our Consolidated Balance Sheets as of November 28, 2021.

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The components of assets held for sale and liabilities held for sale are as follows:

(3) Restructuring, Impairment, and Other Exit Costs

Restructuring charges were as follows:

In the second quarter of fiscal 2022, we approved restructuring actions in the Asia & Latin America segment to drive efficiencies in manufacturing and logistics operations. We expect to incur approximately $21 million of restructuring charges and project-related costs related to these actions, of which approximately $12 million will be cash. These charges are expected to consist of approximately $8 million of severance and $10 million of other costs, primarily asset write-offs. We also expect to incur approximately $3 million of project-related costs. We recognized $7.9 million of severance and $4.7 million of other costs in the second quarter of fiscal 2022. We expect these actions to be completed by the end of fiscal 2024.

We recorded a $9.9 million net recovery of restructuring charges in the second quarter of fiscal 2022 and a $14.0 million net recovery of restructuring charges in the six-month period ended November 28, 2021, related to restructuring actions previously announced. We recorded $0.9 million of restructuring charges in the second quarter of fiscal 2021 and $1.9 million of restructuring charges in the six-month period ended November 29, 2020, related to restructuring actions previously announced. The charges associated with restructuring actions previously announced primarily related to actions designed to better align our organizational structure and resources with strategic initiatives. We expect these actions to be completed by the end of fiscal 2023. Certain actions are subject to union negotiations and works counsel consultations, where required.

We paid net $42.8 million of cash in the six-month period ended November 28, 2021, related to restructuring actions previously announced. We paid net $5.5 million of cash in the same period of fiscal 2021.

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Restructuring charges are recorded in our Consolidated Statements of Earnings as follows:

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

The reserve balance primarily consists of expected severance payments associated with restructuring actions.

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

(4) Goodwill and Other Intangible Assets

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

Based on the carrying value of finite-lived intangible assets as of November 28, 2021, annual amortization expense for each of the next five fiscal years is estimated to be approximately $20 million.

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The changes in the carrying amount of goodwill during the six-month period ended November 28, 2021, were as follows:

The changes in the carrying amount of other intangible assets during the six-month period ended November 28, 2021, were as follows:

Our annual goodwill and indefinite-lived intangible assets impairment test was performed on the first day of the second quarter of fiscal 2022, 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 Uncle Toby’s brand intangible asset.

The excess fair value as of the fiscal 2022 test date of the Uncle Toby’s brand intangible asset is as follows:

In addition, while having significant coverage as of our fiscal 2022 assessment date, the Europe & Australia reporting unit and the Progresso, Green Giant, and EPIC brand intangible assets had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.

(5) Inventories

The components of inventories were as follows:

In addition, we had $24.6 million of inventories classified as held for sale as of November 28, 2021.

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(6) Risk Management Activities

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

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

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

Unallocated corporate items for the quarters and six-month periods ended November 28, 2021, and November 29, 2020, included:

As of November 28, 2021, the net notional value of commodity derivatives was $741.7 million, of which $161.8 million related to energy inputs and $579.9 million related to agricultural inputs. These contracts relate to inputs that generally will be utilized within the next 12 months.

The fair values of the derivative positions used in our risk management activities and other assets recorded at fair value were not material as of November 28, 2021 and were Level 1 or Level 2 assets and liabilities in the fair value hierarchy. We did not significantly change our valuation techniques from prior periods.

We offer certain suppliers access to third party services that allow them to view our scheduled payments online. The third party services also allow suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party. We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third parties, or any financial institutions concerning these services. All of our accounts payable remain as obligations to our suppliers as stated in our supplier agreements. As of November 28, 2021, $1,378.1 million of our total accounts payable were payable to suppliers who utilize these third party services. As of November 29, 2020, $1,405.6 million of our total accounts payable were payable to suppliers who utilize these third party services.

(7) Debt

The components of notes payable were as follows: